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Italian Police Seize Bulgari Executives’ Assets in Tax Probe

Bulgari Hotel, London | Source: Courtesy Photo
  • Bloomberg

MILAN, Italy — Italian police seized more than 46 million euros ($59 million) of assets from executives linked to jeweler Bulgari including Francesco Trapani, who heads parent company LVMH Moet Hennessy Louis Vuitton SA's watch and jewelry unit, for alleged tax evasion.

Property including real estate, bank assets and company stakes have been confiscated, Italy’s Guardia di Finanza, or financial police, said today in a statement from Rome. Also named in the probe were billionaire brothers Paolo and Nicola Bulgari, chairman and vice-chairman of Bulgari, and lawyer Valentini Maurizio.

Between 2006 and 2011, the executives allegedly reallocated about 3 billion euros of Rome-based Bulgari’s revenue into foreign subsidiaries outside of Italy, including units in Switzerland, the Netherlands and Ireland, to avoid paying a higher rate of tax, according to the statement. The company’s jewelry has been worn by actresses from Elizabeth Taylor to Julianne Moore.

Bulgari “is extremely surprised” by the allegations as the units under investigation are “real businesses that perform an undeniably strategic role for the group,” the company said in an e-mailed statement. “Bulgari will take all actions necessary to clarify its position.”

Michele Calcaterra, a spokesman for LVMH, which acquired Bulgari for about 3.7 billion euros in 2011, didn’t return a voicemail message left on his mobile phone seeking comment.

'Dutch Sandwich'

Multinational companies such as Google Inc., Yahoo! Inc. and Cisco Systems Inc. have set up tax-avoidance strategies with subsidiaries in countries including the Netherlands and Ireland, employing structures with nicknames like the “Dutch Sandwich” and “Double Irish.”

Google, for example, sells advertising around the world from a Dublin office, yet has moved the resulting profits from countries where it has actual customers through a Dutch subsidiary and into another Google unit in Bermuda. In 2011, Google paid nearly $10 billion to that Bermuda unit, helping to cut its worldwide income tax bill by about $2 billion.

The Italian tax police began auditing Google in November, searching the company’s Milan offices, as well as the offices of Facebook Inc., according to a person familiar with the matter.

Court Battle

The eponymous founders of Italian fashion company Dolce & Gabbana, meanwhile, have been embroiled in a court battle over charges of tax evasion since 2007. Domenico Dolce and Stefano Gabbana have been accused by Italian prosecutors of selling their clothing brands to their wholly-owned Luxembourg-based holding company, Gado, for less than a third of their market value, each avoiding more than 416 million euros in taxes. Both have denied the charges.

Governments around the world are increasingly targeting tax dodging strategies of big companies as they seek to deal with outsized budget deficits.

The U.K. Parliament has held two hearings since November on the issue. In December, the European Commission announced a new attack on tax evasion and avoidance, which it said cost 1 trillion euros a year. And in February, the Paris-based Organization for Economic Cooperation and Development, funded by governments, released a lengthy report on corporate tax avoidance, at the request of the Group of 20 nations.

Bulgari Ireland

Irish corporate records show that a Bulgari unit called Bulgari Ireland Ltd. reported 693.7 million euros of sales in 2011, the most recent year available. Those sales were mostly to other Bulgari units and included 34.5 million euros of sales in Italy.

Under a typical structure, an Irish operating company making sales around the world would shift the resulting profits out of Ireland by using intra-company payments to other subsidiaries in places such as Bermuda, the Cayman Islands and Switzerland. The payments often get funneled through Holland to avoid Irish withholding taxes on those payments leaving Ireland.

While it’s unclear from Bulgari’s Irish filings if or how profits were moved outside of Ireland, the unit reported it owed 121.7 million to other Bulgari entities as of the end of 2011.

Bulgari was founded in 1884 by Sotirio Bulgari. Trapani, who ran the company from 1984 to 2011, is the nephew of Paolo and Nicola Bulgari, each of whom have a net worth of about $1.5 billion, according to data compiled by Bloomberg. Bulgari’s total revenue reached 1.27 billion euros in 2011, according to LVMH’s financial documents for that year.

By: Andrew Roberts; with assistance from Robert LaFranco in London. Editors: Celeste Perri, David Risser, Kim McLaughlin

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