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Dolce & Gabanna Join the Ranks of Italy's Celebrated Tax Dodgers

Stefano Gabbana and Domenico Dolce attend a Dolce & Gabbana and Martini Dance Art Garage party in Moscow

Photograph by Victor Boyko/DolceGabbana/Getty Images for Dolce&Gabbana and Martini

Stefano Gabbana and Domenico Dolce attend a Dolce & Gabbana and Martini Dance Art Garage party in Moscow

Could Dolce & Gabbana be headed from the catwalk to the perp walk? Domenico Dolce and Stefano Gabbana, known for dressing Hollywood stars in provocative corset dresses and leopard-print undies, were convicted by a Milan court yesterday of tax evasion and sentenced to 20 months in jail. They’ll remain free pending appeals.

The fashion duo joins a long list of Italian celebrities nabbed for dodging the tax man, including Sophia Loren, Luciano Pavarotti, and fellow designers Valentino and Giorgio Armani. And, of course, there’s former Premier Silvio Berlusconi, who was convicted of tax fraud last year—a judgment that was upheld by Italy’s Constitutional Court just this week. Italians seem pretty sympathetic to tax-dodging celebrities. When Loren spent 17 days in a Naples jail in 1982, supporters gathered outside her window and cheered as she blew them kisses. Pavarotti’s 2007 funeral featured an aerial salute by Italian air force fighter jets. And Berlusconi, after being ousted in 2011, has staged a political comeback.

One reason for Italians’ tolerance may be that their country has some of the highest taxes in the world and evading them is something of a national sport. An estimated 22 percent of economic activity is underground. Yet even with rampant evasion, tax collections equal 43 percent of Italy’s economy, well above the 34 percent average for developed countries.

Former Premier Mario Monti tackled evasion with a carrot and a stick, simplifying and reducing income taxes while cracking down on off-the-books cash transactions. But he also raised property and value-added taxes, stirring resentment among those who had been paying their share all along.

Dolce and Gabbana, whose privately held fashion house is valued at $5.3 billion, according to em>Bloomberg, were convicted of setting up a Luxembourg-based holding company to avoid taxes on about €1 billion ($1.3 billion) in royalty payments. Their lawyers said they were “stunned” by the decision and would appeal. If the conviction is upheld, they could owe more than €400 million in back taxes.

For now, Italians seem sympathetic to the two designers. Gabbana’s Twitter feed has been flooded with messages from well-wishers. “Another case of injustice,” wrote one supporter, describing Gabbana as “an Italian genius like Michelangelo.”

Matlack is a Paris correspondent for Bloomberg Businessweek.

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