Safilo Group to Pay $21 Million to Settle ItaIian Tax Dispute

Safilo Group S.p.A., the Italian eyewear company that owns Smith Optics, will pay Italian tax authorities €21 million over the next three years to settle a dispute over how it handled transfer pricing and other international tax matters.

Safilo said the issues resulted from a tax audit of its wholly owned subsidiary, Safilo S.p.A. that started in 2011. The audit by the Italian Revenue Agency initially focused on the year 2007 and subsequently extended to the years 2008, 2009, 2010 and 2011.

The settlement relates to transfer pricing (i.e., the method whereby intragroup prices are determined), the interpretation of the “beneficial owner” concept (i.e., the amount of withholding tax levied on interest paid on bonds issued by a Luxembourg entity of the Safilo Group) and the method of taxation of foreign source dividends.”

Safilo said it had already taken a charge of  €7 million in its financial statement for the year ended Dec. 31, 2102 in anticipation of a settlement, which it will pay out in 12 quarterly installments starting this month.

Safilo said it always acted in accordance with the law, the administrative rulings and jurisprudence available and provide a detailed explanation of its rationale for its tax accounting decisions to Italian authorities during the audit.

“The Group remains firmly convinced that its conduct was appropriate,” Safilo said in a statement issued Thursday. “Nonetheless, Safilo S.p.A. has decided to accept the settlement proposal, as the key matters of the dispute are largely subjective, in as much as they imply, for instance, the evaluation of the arm’s length nature of the application of prices to foreign subsidiaries.

The subject matters therefore lend themselves to divergent positions that are not easy to resolve in litigation, except at the cost of long and expensive defense proceedings with an inevitably uncertain outcome.

The Safilo Group is worldwide leader in the premium eyewear sector for sunglasses, optical frames and sports eyewear. With an international presence through 30 owned subsidiaries in primary markets – in America, Europe and Asia – and exclusive distributors, Safilo produces and distributes its house brands – Safilo, Carrera, Polaroid, Smith Optics, Oxydo – and the license

By press release