Italy court clears designers Dolce and Gabbana in tax evasion case

Italian designers Stefano Gabbana (L) stands next to Domenico Dolce as they talk to the media during a party marking the 25th anniversary of British model Naomi Campbell career in downtown Shanghai October 28, 2010. REUTERS/Carlos Barria

ROME (Reuters) - Italy's top court cleared fashion designers Domenico Dolce and Stefano Gabbana on Friday over charges of hiding hundreds of millions of euros from Italian tax authorities.

Two lower courts had previously convicted the pair, who are as famous as the stars they dress, on allegations that they used Luxembourg holding company Gado to avoid paying taxes on royalties.

In April, an appeals court gave a suspended sentence of 18 months in jail to the designers, who have always denied the charges. Earlier on Friday, a prosecutor in Rome asked the supreme Court of Cassation to confirm the sentence.

In its ruling, the court said it had acquitted the pair because there was no case to answer on charges that they had failed in 2005 to declare royalties initially calculated at 1 billion euros ($1.3 billion) and later reduced.

Shortly after the ruling, Gabbana tweeted: "We knew it!!! We are honest people!".

The suit stems from an investigation that began in 2008 when Italian authorities stepped up their fight against tax evasion as the global financial crisis began to bite.

Fashion groups have come under tax authorities' scrutiny in Italy partly because they performed better than most other sectors during the financial crisis, but the cases rarely come to court.

Fellow Italian fashion house Prada said in September its chairwoman Miuccia Prada and her husband, chief executive officer Patrizio Bertelli, were being investigated by Italian authorities over payment of past taxes.

(1 US dollar = 0.7896 euro)

(Reporting by Roberto Landucci; Writing by Isla Binnie; Editing by Ruth Pitchford)