Italian court gives fashion duo suspended 18-month jail term

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Italian court gives fashion duo suspended 18-month jail term
President of the second section of the appeal court Laura Cairati, center, reads the sentence as assistant attorney general in Milan Santamaria Gaetano Amato, right, back to camera, watches, in Milan, Italy, Wednesday, April 30, 2013. A Milan appeals court has upheld a tax fraud conviction against designers Domenico Dolce and Stefano Gabbana, despite the prosecutor's request to drop the case. However, the court did shave two months off the original suspended sentence, to a year and six months. The designers, mainstays of Milan fashion, were convicted of failing to declare 200 million euros ($268 million) through a Luxembourg company. The prosecutor, in calling for dismissal, called the company "a legal operation." Dolce and Gabbana have denied tax evasion. (AP Photo/Luca Bruno)
LONDON, ENGLAND - APRIL 01: Stefano Gabbana (L) and Domenico Dolce attend a private dinner celebrating the Victoria and Albert Museum's new exhibition 'The Glamour Of Italian Fashion 1945 - 2014' at Victoria and Albert Museum on April 1, 2014 in London, England. (Photo by David M. Benett/Getty Images)
MELBOURNE, AUSTRALIA - APRIL 30: Italian designer Domenico Dolce and Australian singer Kylie Minogue arrive at the Dolce & Gabbana Store party on Collins Street on April 30, 2014 in Melbourne, Australia. (Photo by Scott E Barbour/GC Images)
MOSCOW, RUSSIA - MARCH 12: (L to R) Domenico Dolce, Monica Bellucci and Stefano Gabbana arrive to the Dolce & Gabbana shop at TSUM on March 12, 2014 in Moscow, Russia. (Photo by Gennady Avramenko/Epsilon/Getty Images)

(Reuters) - Fashion designers Domenico Dolce and Stefano Gabbana were each given a reduced, suspended sentence of 18 months in jail on Wednesday for a conviction on charges of hiding hundreds of millions of euros from Italian tax authorities.

Italy's appeals court upheld a verdict issued last June against the pair, who are as famous as the stars they dress, on charges of using Luxembourg holding company Gado to avoid paying taxes on royalties of about 1 billion euros ($1.38 billion).

The sentence was reduced from 20 months because the statute of limitations applied to certain facts in the case.

A lawyer for Dolce and Gabbana, who have always denied any wrongdoing, said they would appeal the decision. "I am speechless. We are all shocked. The judgment is inexplicable and we will appeal," Massimo Dinoia said after the judgment.

A Milan prosecutor had asked the court in March to clear the pair, who - in a protest last year at being "pilloried" - closed the Milan shops where they sell clothes and accessories inspired by Dolce's native Sicily.

The previous decision, by a lower court, handed the duo suspended jail sentences of 20 months each and imposed a fine of up to 10 million euros over avoidance of the payments in Italy, where corporate taxes are among the highest in Europe.

The case stems from an investigation that began in 2008 when Italian tax authorities stepped up their fight against tax evasion as a global financial crisis began to bite.

Fashion companies have fallen under the scrutiny of Italy's tax authorities partly due to the fact the sector has performed well during the country's longest recession since World War Two.

"Luxury is one of the few sectors to have done well in recent years," said a partner specializing in tax at Grant Thornton in Milan who declined to be named.

"It is easier to go and ask for money where there is money as opposed to going to a troubled sector."

The cases rarely come to court, however.

Giorgio Armani paid 270 million euros to tax authorities in early April to settle a dispute over payments from the group's subsidiaries abroad.

Prada Holding, which controls Prada, paid a reported 400-420 million euros to settle taxes in Italy after completing a process of voluntary disclosure in December.

($1 = 0.7237 Euros)

(Reporting by Manuela D'Alessandro, Writing by Isla Binnie; Editing by Mark Heinrich)

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