French luxury giant Kering SA said that it will pay €1.25 billion ($1.4 billion) to settle a dispute with Italy’s tax authorities.
The settlement with the Italian revenue agency relating to Gucci and Swiss subsidiary Luxury Goods International SA requires the French group to pay €897 million in additional taxes, along with further payment for penalties and interest, for a total of €1.25 billion.
The company had faced allegations that it used Swiss subsidiary Luxury Goods International SA to improperly book profits made in Italy in a country where taxes are lower. The alleged scheme centered on Gucci, the Italy-based brand that has fuelled much of Kering’s growth under chief executive Marco Bizzarri and creative director Alessandro Michele.
Kering said it would pay an additional €897 million in taxes this year and another roughly €350 million in penalties and interest. The penalties are expected to result in an additional tax charge of €600 million in the company’s 2019 accounts, and an outflow of €1.25 billion in its cash flow statement.
The issue has dogged the company for more than a year, ever since a raid on Gucci offices in Florence and Milan by Italian tax investigators in late 2017. Kering disclosed its potential liability in January, citing an Italian audit that found the company had underpaid its taxes between 2011 and 2017.
“This is very much in line to what was expected,” said Luca Solca, head of luxury goods at Bernstein. “It is a good thing that Kering is putting it behind its shoulders.” The settlement brings two clear benefits for the company: it removes some uncertainty around the luxury giant’s financials, and a reason for investors to be sceptical about its corporate responsibility credentials, Solca added.
The subsidiary’s facilities there acted as a waystation for Gucci bags, dresses and shoes on their way to shops around the world.