Could the Campari Owner Face Consequences After €1.3bn Seized for Tax Evasion?

The Italian police have seized shares worth €1.3 billion (£1.1 billion; $1.5 billion) from Lagfin, the holding company controlling the Campari Group, amid allegations of tax evasion related to the merger of its Italian operations. The investigation, which began last year, centres on claims that Lagfin failed to pay taxes equivalent to the value of the seized shares and allegedly concealed €5.3 billion in undeclared capital gains. While Campari asserts compliance with tax regulations, its chair, Luca Garavoglia, and other executives are under scrutiny for their roles in the case.

Last updated: 07 October 2023 (BST)

What’s happening now

Recent developments in the investigation into Campari Group have led to significant financial repercussions for its controlling entity, Lagfin. The Italian authorities have accused the company of failing to declare substantial capital gains during the period from 2018 to 2020, which they allege were intentionally hidden to evade tax obligations. This situation is evolving, with potential implications for shareholders and the broader alcohol industry in Italy.

Key takeaways

• Italian police seized shares worth €1.3 billion from Lagfin, the company that controls Campari.
• The investigation focuses on alleged tax evasion during a merger of its Italian operations.
• Campari denies any wrongdoing, asserting compliance with tax obligations.

Timeline: how we got here

The investigation into Campari Group and its controlling company, Lagfin, has unfolded over the past year, with several key dates marking significant developments:

• 2018-2020: Alleged undeclared capital gains are said to have occurred during this period.
• October 2022: Prosecutors in Milan initiated a probe into Lagfin's financial activities.
• October 2023: Shares worth €1.3 billion are seized by Italian authorities as part of the investigation.

What’s new vs what’s known

New today/this week

Authorities have confirmed the confiscation of shares from Lagfin, escalating the scrutiny surrounding the company's financial practices. The investigation is reportedly focused on the actions of key executives, including Luca Garavoglia, as well as the company's financial declarations.

What was already established

Prior to the seizure, Lagfin had publicly claimed adherence to all tax obligations, defending its practices against allegations of tax evasion. The company stated that it operates with "utmost scruples" concerning tax compliance in every jurisdiction.

Impact for the UK

Consumers and households

While the immediate impact of this investigation may not directly affect UK consumers, it raises questions about the practices of multinational corporations operating in the UK and their tax obligations. Consumers may also be concerned about potential changes in pricing or brand reputation as this situation unfolds.

Businesses and jobs

For businesses within the alcohol sector, particularly those competing with Campari's extensive portfolio, the investigation may present both opportunities and challenges. Increased scrutiny on corporate tax practices could lead to heightened compliance costs and a shift in market dynamics.

Policy and regulation

The situation could influence future regulatory policies regarding corporate taxation in the UK, especially for companies with significant international operations. As tax evasion becomes a more prominent issue, policymakers may pursue stricter regulations to ensure transparency and accountability.

Numbers that matter

• €1.3 billion: The value of shares seized from Lagfin.
• €5.3 billion: Alleged undeclared capital gains between 2018 and 2020.
• £1.1 billion: Equivalent value of the seized shares in GBP.
• 80%: The percentage of voting rights Lagfin holds over Campari shares.
• €7 billion: Current valuation of Campari on the Milan Stock Exchange.

Definitions and jargon buster

• Exit tax: A tax levied on firms that transfer their headquarters abroad, aimed at capturing tax liabilities that would otherwise be unpaid.
• Capital gains: The profit from the sale of an asset or investment, which can be subject to taxation.
• Lagfin: A Luxembourg-based holding company that controls a significant share of Campari Group.

How to think about the next steps

Near term (0–4 weeks)

In the immediate future, stakeholders including investors and regulatory bodies will monitor the outcome of the investigation. Companies may reassess their own financial practices to ensure compliance and mitigate risks associated with tax evasion allegations.

Medium term (1–6 months)

As legal proceedings potentially unfold, Campari's market performance and reputation could be impacted. Companies in similar sectors might begin reviewing their tax strategies to avoid similar scrutiny and potential legal challenges.

Signals to watch

• The response from Lagfin regarding the investigation and any legal actions it may pursue.
• Updates from Italian authorities on the investigation's progress and findings.
• Market reactions to Campari's brand reputation and stock performance in light of the allegations.

Practical guidance

Do

• Stay informed about the developments in corporate tax regulations.
• Evaluate the reputation of brands and their compliance with tax laws.

Don’t

• Ignore the implications of corporate tax practices on consumer trust.
• Overlook the potential for changes in pricing or availability of products.

Checklist

• Monitor news regarding Campari and Lagfin for updates.
• Review your own financial practices if you are a business owner.
• Consider the ethical implications of supporting brands with questionable tax practices.

Risks, caveats, and uncertainties

As the investigation is ongoing, many details remain uncertain. The allegations of tax evasion are serious, but the outcomes depend on various factors, including the judicial process and the response from Lagfin and Campari. Stakeholders should remain cautious about jumping to conclusions until more information is available.

Bottom line

The seizure of shares from Lagfin highlights significant issues surrounding corporate tax compliance in the global business environment. With the investigation still in its early stages, the implications for Campari and the broader alcohol industry are yet to be fully realised. Stakeholders should keep abreast of developments and consider the potential impact on brand reputation and market dynamics.

FAQs

What are the allegations against Campari Group?

Campari Group is facing allegations of tax evasion, specifically related to undeclared capital gains and failing to pay taxes during a merger of its Italian operations.

How much has been seized from Lagfin?

Shares worth €1.3 billion (£1.1 billion; $1.5 billion) have been seized from Lagfin as part of the investigation into the alleged tax evasion.

What is Lagfin's role in the Campari Group?

Lagfin is a Luxembourg-based holding company that controls more than 50% of Campari shares and holds 80% of the voting rights.