Kering’s decision to settle with the Italian Revenue Agency through the payment of 1.25 billion euros ($1.4 billion) — one of the biggest ever with the Italian authorities — could become a cornerstone decision and have a major effect on similar scenarios, triggering questions about international taxation.
The case confirms “the obsolescence of the traditional criteria of international taxation that are based on transfer pricing theories and the ‘permanent establishment’ concept, as they continue to fuel uncertainties and litigation between companies and the financial administrations in various countries,” said Luigi Perin, CPA, partner at Funaro & Co. P.C.
The investigations of the Italian tax authorities, which focused on Kering’s tax payments related to the sales in Italy of Gucci products between 2011 and 2017, identified a tax evasion of 1.4 billion euros. According to the Italian tax authorities, in distributing Gucci products in Italy through a directly operated Switzerland-based company named Luxury Goods International, Kering had intentionally avoided the payment of taxes in Italy.
This is only the latest in a string of similar cases, ranging from Prada Holding BV’s alleged subsidiaries in the Netherlands and Luxembourg for a more favorable tax rate to Dolce & Gabbana’s Luxembourg-based holding company, Gado Srl, which the Italian tax police reportedly considered essentially a legal entity used to avoid higher corporate taxes in Italy, or Luxottica’s tax audit concerning the year 2007 over alleged irregularities in the use of transfer pricing.