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Gucci owner owes $1.6B in taxes, Italy audit finds

Kering SA, the French owner of the Gucci luxury brand, owes about 1.4 billion euros ($1.6 billion) to Italy in back taxes, according to the conclusions of a government audit.

The probe scrutinized business activities by Kering’s Swiss subsidiary, Luxury Goods International, from 2011 through 2017, according to a company statement. Kering said it contests the findings of the Italian audit.

Italian authorities opened a probe into the Gucci owner’s taxes in 2017, focusing on a Swiss subsidiary of the Paris-based company. Citi analysts had estimated that Kering could face a settlement of 1.3 billion to 2 billion euros from the probe.

While the initial liability is in the expected range and “should not shock,” the company might face additional fines, John Guy, an analyst with Mainfirst Bank, said in a note. The company “has been provisioning ahead for the liability and will be able to offset part of the claim, hence we expect a lower net number.”

The auditor’s report will be reviewed by Italy’s revenue agency, which will then make a final conclusion, according to the statement. Kering said it doesn’t have the necessary information to make a specific accounting provision for the tax exposure, and has implemented strict monitoring of its tax risks.

French news site Mediapart had reported that the company billed for business carried out in other countries at a Swiss logistics center, where it paid lower tax rates than it would have in Italy.

Gucci store in Moscow
Pedestrians pass by a Guccio Gucci SpA store in Moscow, Russia, on Friday, Dec. 28, 2018. While the European Union shied away from penalizing Russia after a naval clash with Ukraine last month that was condemned by the West, the U.S. is threatening escalating sanctions tied to accusations of Russian meddling in the 2016 presidential elections; the risk of new measures has made it much harder for foreign businesses to work in Russia. Photographer: Andrey Rudakov/Bloomberg