Stefano Gabbana and Domenico Dolce Rock the Reverse Penguin. Photo by Ron Galella, WireImage

Are Domenico Dolce and Stefano Gabbana two of Italy's top (alleged) tax cheats? Or is it all a big misunderstanding?

According to WWD, Italy's excise and revenue police have recommended that the two superstar designers be brought up on tax evasion and abuse of rights charges with fines of no less than €800M (that's $1.12B at current exchange rates). Wow!

Apparently, Italian authorities have seized on the sale of the brand in 2004 to D&G's holding company based in Luxembourg. However, since the sale -- from the designers to their own holding company -- was all on paper, Domenico and Stefano argue that they're being taxed for imaginary money they never collected. They claim to have received only 360 million euros, which they did pay taxes on. From D&G's statement:
"It's an absurd demand based on a completely abstract calculation. This higher taxable sum ... is a virtual figure we have never received, the result of a theoretical accounting exercise."
The duo said that tax authorities have misinterpreted the data and that, if the police's calculations were correct, the brand would have been worth $1.37B in 2004. "We wish!" quipped the designers in WWD.

D&G's holding company, Gado Srl., is essentially recognized by the Italian authorities as a legal entity, but they understand it to be somewhat of a shelter to avoid Italy's high corporate taxes, reports WWD.

Obviously, in a down economy where budget shortfalls are expected, that kind of alleged tax side-stepping maneuver could rub authorities the wrong way. Perhaps that's why they're recommending charges nearly five years after the fact.

Let's just hope things get straightened out so they can focus on more important things, like designing the collections!