Should Kering worry about a new tax threat?

French luxury group Kering is mired in fresh controversy and its top management is under fire at a time when the group is also struggling, after revenue plummeted in the first quarter. Italian newspapers Domani and Mediapart reported that a former Kering collaborator alerted Italian tax authorities about a real estate project in Milan. No formal investigation appears to have been opened, but it should be noted that Kering was the subject of an audit by the tax authorities in Italy in 2019. According to information collected by the two newspapers, Kering paid money to two companies in which the wife of Jean-François Palus, former second-in-command of the group, had a minority stake.

Domani and Mediapart wrote that the matter dates back to 2012, when Kering began renovation work on a former industrial building on Milan's via Mecenate, which later became the Gucci Hub, the luxury brand's headquarters. The €100 million project was completed in 2016 and was commissioned by architecture studio Piuarch. Argi Consulting Ltd also participated in the final phase of the project, a company whose co-directors and shareholders include Angèle Palus, wife of the former deputy CEO of Kering (from 2008 to 2023), now CEO of Gucci.

Another company, Luc Germain Design Studio Ltd, co-run by Luc Germain and Angèle Palus, also owns a 20% stake in the group. Germain is a personal friend of the Paluses and, Mediapart claims, the architect who designed his family home. Between 2014 and 2016, he was also commissioned to renovate Kering's offices at Buckingham Gate in London.

The documents to which domani and Half part had access to ask the tax authorities to verify to what extent the company in which Angèle Palus participated worked on the Mecenate road project. The argument is that the invoices paid by Kering Italia to Argi Consulting Ltd for the renovation works in Milan “were classified by the luxury group in costs, to reduce its tax base and pay less taxes.”

Contacted by the two newspapers, Kering stated that “the services provided between 2014 and 2016 by the architectural firms you mention correspond to actual documented auditing, consulting and project management assistance services, which turned out to be of proven benefit to Kering. and resulted in significant savings in the total cost of the renovation works. These services were billed and paid at market rates.”

The fact is that the matter smacks of a conflict of interest, something surprising for a group of such caliber. In an email cited by Half part Regarding the creation of a steering committee for the project via Mecenate, Jean-Marc Duplaix, then chief financial officer of Kering, wrote that “any possible conflict of interest must be avoided (…)” between the members of the steering committee. and, in particular, any involvement of “an employee or family member in the role of subcontractor.”

Kering is waiting for Italian tax authorities to decide whether to follow up on the allegations, which they were not aware of until February 10, 2023. The luxury group certainly didn't need more media attention at the moment, especially for something what happened. almost 10 years ago. Kering said she is concerned about the coincidence. In April, she announced that her operating income is expected to fall 40% to 45% in the first half. And the group is fully committed to relaunching its leading brand, Gucci, run since last July by Jean-François Palus, the man specifically targeted by the allegations.