Luxury Giant Kaiyun Group May Pay Up To 1.4 Billion Euros In Taxes

According to insiders, French luxury giant Kering may reach a settlement with the Italian tax bureau at a cost of 1.3 billion to 1.4 billion euros.

In December 2017, the Italian tax authorities recently raided the headquarters of Gucci (Gucci), the flagship brand of the Group, in Florence and its offices in Milan. The Milan procuratorate suspected Gucci of tax evasion (transferring income to another country with more preferential tax system for tax declaration). The Italian daily La Stampa reported that the amount of suspected tax evasion may be as high as 1.3 billion euros.

Insiders said that the agreement between Kaiyun Group and the Italian Taxation Bureau is expected to be reached in early May. Once the agreement between the two parties is reached, this will be the largest amount of enterprise supplementary tax received by the Italian Taxation Bureau.

In a statement, Kaiyun said that the Group had held many discussions with the Italian tax authorities and ensured that all meetings were held in an "open cooperation environment. At this stage, the two sides have not yet reached a specific payment amount."

Once Kaiyun Group has reached an agreement with the Italian Tax Bureau, Kaiyun will no longer have to bear the interest and penalties arising from the delayed payment of taxes. An insider said that the amount of this part may reach 500 million euros.

Since 2017, the Italian Taxation Bureau has started to check the audit reports of Kaiyun Group from 2011 to 2017. The flagship brand of Kaiyun Group and Italian luxury brand Gucci are their main respondents.

In January 2018, Gucci was rumored to avoid taxes for CEO Marco Bizzarri and employees through offshore companies.

In March 2018, Mediapart, a French news website, said that Kaiyun Group had filled in false information and avoided tax by 2.5 billion euros through tax declaration in the Swiss logistics center LGI. They also pointed out that the 20 Italian employees that Kaiyun Group had previously announced to send to Switzerland are still working in Italy. Kaiyun Group refuted the report.

In November 2018, the Italian Milan prosecutors ended their tax investigation on Gucci. The results showed that the brand was suspected of tax evasion (transferring the income to another country with a more preferential tax system to file tax returns) for 1 billion euros. The Milan prosecutors are ready to formally prosecute Gucci in this case. In January this year, the Italian tax bureau charged Kaiyun Group, saying that its Swiss subsidiary Luxury Goods International should pay up to 1.4 billion euros in taxes to Italy. The tax officials believe that although LGI is headquartered in Switzerland, it mainly conducts business activities in Italy, so it should pay taxes to the Italian tax authorities. The Italian Taxation Bureau will review the audit results and make a final conclusion.

But Kaiyun Group raised an objection to this. They said that all subsidiaries of the Group in Switzerland are engaged in frequent business activities, so they should comply with the law and pay taxes to Switzerland according to the company's financial situation. The tax authorities in France and other countries understand and allow this business model. (For details, please refer to the "Gorgeous Record": the Italian tax bureau accused the company of 1.4 billion euros in arrears of taxes, and Kaiyun Group said that the subsidiary's tax payment in Switzerland was irreproachable.)

Kaiyun Group recently released its financial report for the first quarter of the 2019 fiscal year as of March 31: sales increased by 21.9% year-on-year to 3.785 billion euros. Excluding the impact of exchange rate fluctuations and M&A transactions, the increase was 17.4%, slightly higher than analysts' expectations. (See Gorgeous Chronicle for details: sales in the Asia Pacific market increased by 29.6% year on year, driving the latest quarterly performance of Kaiyun Group to exceed expectations)

In recent years, Italy has been stepping up efforts to combat tax evasion. In addition to Gucci, many other Italian luxury brands have also experienced tax inspections:

In December 2016, at the request of the prosecutor, the Italian court issued a tax investigation order to Miuccia Prada, CEO of Prada Group, and her husband Patrizio Bertelli. In November 2017, Prada paid 470 million euros to avoid tax disputes and signed a cooperation agreement with the Italian tax authorities.

Nicola and Paolo, heirs of Bulgari, the famous Italian jewelry brand, and the fifth generation heirs, were accused of tax evasion from 2006 to 2010 in 2015.

Dolce&Gabbana's co-founder was once sentenced to prison for tax evasion, and was finally acquitted. After ten years of litigation, the Italian Supreme Court made a verdict of innocence in 2-18 years, and the defendant did not have to bear any financial fines. Author: Jiang Jingjin