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Kering Jewel Gucci Facing Tax Evasion Investigation in Italy

All the cool kids are wearing Gucci. What’s not so cool? The company’s recent probe by the Italian government over alleged tax evasion.

And it comes at a time when the label is hotter than ever. Kering Group, which owns the Gucci brand, reported same store sales were up 49.4% in the third quarter, lifting the whole organization by 32.3%. Revenue at the luxury label catapulted up 42.8%, which the firm attributed to innovative designs that attract a broad customer base.

Indeed it seems consumers love the label’s maximalist, more-is-more aesthetic. The company’s embroidered sneakers and fur-lined slides are among the year’s best sellers; the brand remains perched at No. 4 on luxury resale site The RealReal, besting perennial faves like Chloe; and it’s regularly on the backs of famous celebs like Chrissy Teigen, Priyanka Chopra and Jared Leto when snapped for magazine covers.

But all of that high flying success has now been called into question in the midst of a $1.54 billion tax evasion allegation. Reuters reports that as part of its investigation, Italian government officials were seen at Gucci offices in Milan and Florence recently.

According to an anonymous insider, the government believes the fashion house failed to pay taxes in Italy on sales made there, instead attributing those sales to another country with a lower tax rate.

In response to the reports, Gucci released a statement to Italian paper, La Stampa, saying “Gucci confirms that it is providing its full cooperation to the respective authorities and is confident about the correctness and transparency of its operations.”

It’s too soon to know how far the probe might extend, but if previous tax fights are any indication, it could be a long process.

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Italian house Dolce & Gabbana was embroiled in an ongoing battle with the Italian government over charges it funneled sales through a fake corporation in Luxembourg in order to avoid paying hundreds of millions of euros in taxes in Italy. Ultimately, the pair was cleared after a four-year battle, but not before the case escalated to higher courts and resulted in a lot of unfavorable press. Associates who worked with the company were also later exonerated.

Other fashion businesses targeted in Italy have included Giorgio Armani, Prada and Bulgari.

Speaking of the Gucci probe, Leopoldo Zambeletti, an independent strategic adviser and former banker at JPMorgan Chase, told The New York Times it’s Gucci’s recent success that may have put them in the crosshairs.

“They could become the poster child of a new world order of tax avoidance,” he said. “What better way to show you mean business than to take on the biggest, shiniest name?”