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Italian designers Dolce, Gabbana convicted of tax evasion

Italian fashion designers Domenico Dolce (L) and Stefano Gabbana in this 2007 file image.
Italian fashion designers Stefano Gabbana (L) and Domenico Dolce in this 2007 file image.Filippo Monteforte / AFP - Getty Images

MILAN, Italy - Fashion designers Domenico Dolce and Stefano Gabbana were given a suspended 20-month jail sentence on Wednesday after being found guilty of hiding $1.3 billion in income from tax authorities.

The suspended sentence, which one of their lawyers said they would appeal, means they will avoid prison as long as they commit no other crimes for five years.

The conviction is the culmination of efforts by tax authorities to prosecute the pair. Two years ago, a court threw out charges of fraud.

The designers, whose creations have earned them celebrity friends including Madonna, were not present in court in Milan and have always denied the charges.

"We will read the reasons for the verdict, and we will appeal," Massimo Dinoia, one of the pair's defence lawyers, said after the hearing.

Public prosecutor Gaetano Ruta had asked for a two-and-a-half year jail term. However, the two designers will have to pay 500,000 euros as a first instalment of a fine that could reach 10 million euros ($13.4 million).

The judge acquitted the pair of charges that they had filed inaccurate tax returns.

The success of Dolce and Gabbana's sexy corset dresses and sharply tailored suits favored by celebrities such as Kylie Minogue, Kate Moss and Bryan Ferry have earned them a glamorous lifestyle. In 2009, they hosted Madonna for her birthday at their villa perched above the chic Mediterranean resort of Portofino.

The case involves an investigation that began in 2008, when Italian authorities tried to crack down on tax evasion as the financial crisis began to bite. But the Dolce and Gabbana inquiry is one of the few high-profile cases to come to trial so far.

The judge ruled that the pair sold their brand to Luxembourg-based holding company Gado in 2004 to avoid declaring taxes on royalties of about 1 billion euros ($1.3 billion).

Public prosecutor Laura Pedio told the court in her closing arguments that the designers were "well aware that they would reap a tax advantage from this transaction."

Gado is nothing but a shell company that took no administrative or financial decisions, said Pedio. "Gado is a radio relay station," she said. "The orders originated in Milan, and bounced from Luxembourg back to the Milan offices where the decisions regarding the brands were made."

Dolce and Gabbana's three lawyers said in a statement they were "frankly stunned" by the verdict and were "certain that that it will be overturned on appeal."

The designers still risk a possible tax bill of more than 400 million euros as a result of the case, their lawyers said, which could impact their fashion house.

"We are afraid to even imagine what the social and economic consequences of such a move would be," said their lawyers.

The pair's flamboyant designs are inspired by the island of Sicily, where Dolce was born in 1958. They showed their first collection in 1985 in Milan, the home city of Gabbana who is now 50. The brand took hold internationally in the 1990s and global revenues hit just under 1.5 billion euros in 2011.

Gabbana's immediate reaction on Wednesday was to tweet a photograph of the branch of a citrus tree, a symbol of Sicily which is the duo's signature, just seconds after the verdict was announced.

(Reuters contributed to this report)

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