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Italian icons find no respite from tax man

Thursday - 6/20/2013, 2:40am  ET

FILE -- In this file photo taken on Jan. 12, 2013, Italian fashion designers Stefano Gabbana, left, and Domenico Dolce bow to the audience after presenting their Dolce & Gabbana men's Fall-Winter 2013-14 collection in Milan, Italy. A Milan court convicted fashion designers Domenico Dolce and Stefano Gabbana of tax evasion. The pair were found guilty Wednesday of failing to declare euros 1 billion ($1.3 billion) in income to authorities. The court sentenced them both to one year and eight months in jail. Prosecutors argued that the pair had evaded taxes on income of 416 million euros each and 200 million euros through a Luxembourg-based company. The statute of limitations ran out on a charge of misrepresenting income. (AP Photo/Antonio Calanni)

COLLEEN BARRY
Associated Press

MILAN (AP) -- Sophia Loren wore green silk and sunglasses for her date with the taxman, Luciano Pavarotti a suit and sneakers. Diego Maradona gave up his diamond stud earring to pay off a tax debt.

Some of Italy's most well-heeled residents have come under the glare of successive governments who have declared wars on tax evasion, yet it remains a perennial problem for the debt-laden nation. On Wednesday, it was the turn of designers Domenico Dolce and Stefano Gabbana, who were convicted of failing to declare 200 million euros ($268 million).

Former Premier Silvio Berlusconi declared a tax amnesty in 2009, repatriating billions at a negligible penalty of 5 percent. He, too, has been caught up in the crackdown: Last year the billionaire media mogul was convicted of tax fraud related to his media business, a charge he denies.

His successor, Premier Mario Monti, dispatched tax police to resorts to ensure that receipts were being properly issued and income declared. While hiding income abroad may suit the jet-set, a more widely practiced and insidious form of evasion in Italy is the failure to issue receipts for anything from handy work to private medical visits to a cup of espresso.

By some estimates, as much as 20 percent of Italy's GDP is lost to tax evasion -- a sum that if recouped would help Italy pay down its 2 trillion euro debt.

Here's a look at some of the biggest names in the dragnet:

DOLCE&GABBANA

A Milan court on Wednesday convicted Dolce and Gabbana of tax evasion for failing to declare 200 million euros ($268 million) through a Luxembourg company to Italian authorities. They received a one year and eight months suspended jail sentence and ordered to pay a penalty of 500,000 euros (about $670,000) to tax authorities.

The court, however, acquitted them of misrepresenting income of 416 million euros (around $560 million) each, ruling that no crime had been committed.

The designers have denied the charges, and the defense has pledged to appeal the ruling.

SILVIO BERLUSCONI

Berlusconi was convicted last fall of tax fraud in the purchase of rights to broadcast U.S. movies on his private TV network. An appeals court in May upheld the conviction, four-year jail term and five year ban on public office.

Berlusconi has contested the convictions, and called the judicial reasoning for the appeal "surreal."

The appellate court said there was "conclusive evidence, oral and documented, that Berlusconi directly managed ... an enormous tax evasion through off-shore companies."

Berlusconi's defense is planning to appeal to the country's highest court.

They lost a separate challenge at the constitutional court level Wednesday that could have caused the trial and appellate court sentences to collapse. That court rejected a defense argument that the trial court judge had improperly gone ahead with scheduled testimony on a day then-Premier Berlusconi had a Cabinet meeting in Rome. It noted he had previously indicated to the trial court his availability.

DIEGO MARADONA

Soccer star Diego Maradona sold a diamond earring to help pay off his 37 million euro tax bill to Italy. Valued at 5,500 euros, it netted 25,000 euros at a 2010 auction.

Maradona's Italian debts stem from unpaid taxes during the time he played for Napoli from 1984-91.

The Equitalia tax collection agency said the auction take was a drop in the bucket -- but sent a message that even celebrities had to pay taxes.

VALENTINO ROSSI

Seven-time motorcycling world champion Valentino Rossi was snagged by tax authorities who monitored his comings and goings to Italy. He had declared his tax home in London, but ran afoul of the tax man when his presence in Italy exceeded the foreign resident test.

Rossi, then Italy's highest paid athlete, paid about 19 million euros in 2008 to settle the dispute with tax authorities, who accused him of not declaring earnings of 60 million euros from 2000-2004.

After reaching the settlement, Rossi said he had decided to live in Italy again.

"London is a very interesting city, but spending more time with my family and my friends has become of greater importance considering all my affairs around the world," Rossi said.

LUCIANO PAVAROTTI

Luciano Pavarotti wore a pinstripe suit over black sneakers for his reckoning with the Italian tax man.

The tenor showed up in person at the Finance Ministry in 2000 to seal an agreement to pay nearly 25 billion lire (around $12 million) to the Italian state after unsuccessfully claiming that the tax haven of Monte Carlo, rather than Italy, was his official residence.

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