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Dolce & Gabbana Faces Tax Probe

Italian authorities have opened a criminal investigation into the Dolce & Gabbana fashion empire following allegations of tax evasion.

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MILAN — Italian authorities have opened a criminal investigation into the Dolce & Gabbana fashion empire following allegations of tax evasion.

Milan-based public prosecutor Laura Pedio, who is heading up the case, told WWD on Monday the probe into alleged undeclared earnings and value added tax was "at an early phase," but declined to give further details. The crime can carry up to a three-year prison sentence.

Italian news daily La Repubblica reported Sunday that neither Domenico Dolce nor Stefano Gabbana has so far been named in the investigation, but that their eponymous fashion group could be liable for more than 125 million euros, or $192 million at current exchange, in unpaid taxes and fines.

According to the report, Italian tax authorities have already turned down a proposed settlement of 92 million euros, or $141.3 million, by Dolce & Gabbana Srl.

A spokeswoman for Dolce & Gabbana could not be reached for comment at press time.

The case reportedly relates to Luxembourg-based company Gado Sarl, which owns the Dolce & Gabbana and D&G brands. Italian financial police are said to believe Gado is essentially a legal entity, allegedly used to avoid higher corporate taxes in Italy.

La Repubblica reported that investigators are also examining alleged financial irregularities at the group's subsidiary in the United States.

In a separate inquiry reported in WWD last week, Italian tax authorities are believed to have already ordered Dolce & Gabbana Industria SpA, which operates the group's production facilities, to pay a fine of 2 million euros, or $3.1 million, for allegedly not declaring sales of stock to distributors via a satellite company.