When Bulgari, the luxury Italian jeweller, set out to celebrate its 130-year anniversary last year at its flagship store on Rome’s Via Condotti – where Richard Burton once bought Elizabeth Taylor a suite of diamond and emerald jewels – it spared no expense. It hired an architect to restore the marble interior and invited guests such as Carla Bruni and Adrien Brody, who attended the party alongside the billionaire Bulgari heirs, Paolo and Nicola.
Months earlier, the grandsons of the Bulgari founder were caught up in a less glamorous occasion: the seizure of Bulgari’s office on Via Condotti by Italy’s tax police – the Guardia di Finanza – which confiscated the property in 2013 as part of a €46m (£33m) asset seizure following allegations of tax evasion. This week, an Italian judge ordered Nicola and Paolo to stand trial on charges that they and 11 others evaded taxes from 2006 to 2010. Both deny the charges, according to a Bulgari spokesman.
The case follows a spate of tax investigations into Italian luxury brands including Dolce & Gabbana, Giorgio Armani, Prada, and the Marzotto textile firm. The authorities’ track record is mixed. Last year, Italy’s highest court overturned fraud convictions against the fashion duo Domenico Dolce and Stefano Gabbana, , who had been facing 18-month jail terms for allegedly evading €1bn in taxes.
Investigators scored a victory with fashion house Giorgio Armani, forcing the designer brand to pay €270m to Italian tax authorities to settle allegations that it used foreign subsidiaries to shield tax payments. Miuccia Prada of the Prada fashion house and her husband are reported to have paid €420m to settle their tax affairs in Italy after the company completed a voluntary disclosure in 2013. In the same year, the Marzotto family made a €56m tax payment in the wake of selling the Hugo Boss and Valentino labels.
The inquiries reflect an attempt by authorities to crack down on alleged tax cheats as Italy tries to claw back some of the estimated €120bn lost every year through tax fraud. It is one way the country hopes to pare down Italy’s €2tn debt load.
It is no coincidence that many of the targets are among Italy’s most successful companies and entrepreneurs, where the potential gains for the tax authorities are bigger. “If you go fishing in a small lake, you get small fish. If you go fishing in a big lake, you get big fish,” said one person whose company has been targeted.
However, tax experts say that in some cases officials are investigating companies that are trying legitimately tominimise their tax obligations, by setting up offices in low-tax jurisdictions such as Ireland. It is the same strategy used by many other multinational businesses – albeit controversially – such as Apple and Microsoft.
“I think all such cases with important names – like Bulgari or Prada – deal with tax avoidance rather than evasion, because these companies have implemented sophisticated strategies of locating assets offshore,” says Tancredi Marino, a tax lawyer in Milan.
“It is very important for the Italian tax police to have big names in the press that are under investigation because it puts pressure on an average Italian guy to – you know – report his half-a-million euros in Lugano [Switzerland],” he adds.
Some wealthy clients have been left scratching their heads about whether they ought to begin declaring income they have in overseas accounts, Marino says, because they are convinced the government will announce an amnesty programme – as it has done in the past – that might allow them to escape at least some fines. The tax police are also pursuing the financiers who allegedly help rich Italians funnel their money out of the country by disguising their assets in shell companies.
Late last month, Italian police arrested a Swiss baron named Filippo Dollfus von Volckersberg, as he entered Italy to attend his grandchild’s baptism. The Swiss financier is suspected of having “cleaned” at least €850m for Italian and international clients over the past 40 years,using shell companies to move and hide the funds, Italian prosecutors claim. Von Volckersberg’s attorney did not respond to a request for comment.
In the case of Bulgari, investigators have alleged that some of the company’s executives evaded hundreds of millions of euros in taxes on about €3bn in revenue, generated in Rome, by moving its profits into low-tax subsidiaries such as Switzerland, Ireland, and the Netherlands.
Police said in a statement at the time of the property seizure in 2013 that they had uncovered an “escape strategy” at Bulgari , which used an Irish subsidiary to sidestep the Italian tax system.
The authorities allege the tax evasion occurred between 2006 and 2010, before Bulgari was taken over by LVMH, the French luxury group. But a Bulgari spokesman said that Italy’s inland revenue office – which is separate and independent from the Guardia di Finanza – has already determined that most of the allegations against the group were essentially unfounded, because the foreign companies that were used for tax purposes were real businesses, and not merely “shell” companies.
Bulgari said it agreed a €42m fine to settle the remaining allegation, which involved a dispute over corporate restructuring, rather than tax matters.
The key issue in all the tax cases involving luxury firms, says Dario Stevanato, another tax expert, is whether companies are legitimately using companies they have created abroad, or whether the foreign entities are being used to hide funds from authorities.
LVMH, which acquired Bulgari for €3.7bn, declined to comment on the case. A Bulgari spokesman said the financial structures that have been in place since before the acquisition – which are subject to the tax investigation – have not been changed since the takeover.