Reuters quoted judicial sources as saying that the prosecutor in Milan, Italy, has concluded a tax investigation of GUCCI, a well-known luxury brand in the country. The investigation found that GUCCI is suspected of tax evasion (transfer of income to another country with a more favorable tax system to file a tax return) 1 billion euros (the US $ 1.13 billion), Milan prosecutors are preparing to formally sue GUCCI in the case.
GUCCI reported revenue through Luxury Goods International (LGI) based in Switzerland, but Milan prosecutors said it should pay taxes in Italy rather than Switzerland. LGI is a subsidiary of Gucci’s parent company, Kering Group, and is the distribution and logistics management center for most of the group’s brands.
It is reported that the case will be submitted to the court unless the two parties reach a consensus solution within the next 20 days or there is new evidence that Gucci is not guilty.
GUCCI CEO Marco Bizzarri and former CEO Patrizio Di Marco are under investigation.
Kering Group issued a response: “I have confidence in the legitimacy and transparency of the GUCCI operating model and are actively cooperating with the investigations of relevant departments.”
The earlier analysis suggested that Italy has become a frequent location for suspected tax evasion by luxury goods groups in recent years. Due to the economic crisis leading to a significant decline in Italian national income, relevant departments have stepped up their investigations of corporate tax evasion. However, as the Italian tax authorities increasingly interfere with Italian luxury goods groups, and luxury brands, especially listed companies, are more sensitive to their image, the endless tax investigation will bring uncertainty to investors and cause stock price turbulence. Some brands that are concerned about lengthy investigation procedures and damage to their image choose to accept tax authorities’ fines.
However, for Kering Group and GUCCI, they have been enjoying a “happy spring breeze” in the past two years. On October 24, Kering Group released its third-quarter fiscal 2018 report showing that the Group’s sales increased by 27.6% year-on-year to 3.4 billion euros, of which GUCCI led the way, with sales up 34.9% year-on-year.
Besides, recent Bloomberg Intelligence research by Bloomberg Intelligence has put forward a list of 50 companies to watch in 2019 after analysts tracked more than 1,900 companies in the technology, retail, apparel, and luxury industries. The fast Kering Group became the only luxury company on the list.
However, Zhou Ting, Dean of the VIP Research Institute, said that the growth of the core brand GUCCI in recent years has mainly depended on product innovation to absorb traffic, but because consumer preferences change rapidly, the brand’s ability to continue product innovation is critical, but the brand is overly Product innovation will make consumers feel aesthetic fatigue, so Kering Group also faces certain risks in GUCCI product innovation.