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Record Fine In Italian Tax Settlement To Be Paid By Gucci Owner Kering

Record Fine In Italian Tax Settlement To Be Paid By Gucci Owner Kering
A record 1.25 billion euros ($1.40 billion) would be paid to the 1.25 billion euros ($1.40 billion) by the French luxury goods group Kering for the settlement of a case that is related to the fashion brand Gucci of the company.
According to analysts, the cash reserves available with Kering are at over 10 billion euros which means that the fine can be easily absorbed by the company.  Kering has however denied all of the charges that are related to alleged tax avoidance by Gucci. The case however has the potential to dent the image of the group which is known for its corporate social responsibility credentials and the environmentally friendly projects undertaken by it. For exmaple, 100 million euros was pledged for the rebuilding of Notre-Cathedral in Paris after it was devastated by fire last month by its billionaire boss, Francois-Henri Pinault.
“In terms of reputation, this is a slightly more important concern as Kering has stood up as a champion of ESG (environmental, social and governance),” Bernstein analyst Luca Solca said. The incident can have more of an impact with on ESG-minded investors while there is little chance of much impact on consumers, Solca added.
The tax avoidance allegations brought in by Italian authorities primarily against Gucci which is a major cash cow for Kering after the brand got a makeover under designer Alessandro Michele. Allegations of tax avoidance on more than 1 billion euros in revenues between 2011 and 2017 were brought against Gucci by the Italian tax authorities. In late 2017, the offices of the company were raided in Milan and Florence.
Kering’s Swiss-based subsidiary Luxury Goods International is used by the group to book Gucci revenues and the claim of the Italian tax authorities as that the company should pay taxes in Italy instead of Switzerland. 
The claim of prosecutors that Gucci had a “permanent establishment” in Italy during the period under scrutiny was acknowledged by Kering, the company said in its statement.
An additional tax charge of 600 million euros in its 2019 financial accounts would be faced by the company because of the fine which includes 897 million euros in back taxes while interest payments and penalties make up the rest, the company said.
“Whilst clearly not a positive for the stock, it is a one-off and one that Kering can fortunately afford,” Jefferies analyst Flavio Cereda wrote in a note.
According to reports, Kering would now be spared from being forced to pay even more interest and sanctions for late tax payments, because of its decision to settle the issue.
Kering confirmed on Thursday that Gucci Chief Executive Marco Bizzarri and former CEO Patrizio Di Marco still remain under investigation in the case, “in their capacity as legal representatives of the company”. Kering confirmed on Thursday I was “confident that the situation regarding the criminal investigation will be clarified”, the company added.

Christopher J. Mitchell

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