French Tax Officials Asked to See Europe’s Richest Man During LVMH Raid

(Bloomberg) -- One of the first things tax officials did upon arriving at LVMH Moet Hennessy Louis Vuitton SE's Paris headquarters on a cloudy September morning last year was to ask to see Bernard Arnault, the company's billionaire chairman.

The seven inspectors, who arrived unannounced at the site on fancy avenue Montaigne, had to settle for board member Antonio Belloni. Another team raided the premises occupied by Moet Hennessy a few minutes' walk away.

Overall, tax authorities gathered more than 1 million emails as part of a probe into suspicions LVMH was pretending it carried out treasury operations in Belgium to lower its bill. Details on the case emerged at a court of appeals hearing on June 3 in the French capital, where the luxury-goods titan was challenging the raids.

The company disagrees with French tax officials' assumption that LVMH Finance Belgique's activities may in fact have been conducted in France -- where taxes are higher -- and says the raids weren't warranted, according to one of its lawyers.

The raids were “shockingly disproportionate,” Delphine Michot said at the hearing. She said the Belgian unit isn't a “letter box” but “occupies half a floor in a big tower in Brussels” and has at least six full-time staffers.

High Earners

Arnault has already had issues related to Belgium in the past. In 2012, he applied for Belgian citizenship amid French plans to tax very high earners. While the application was turned down, the move caused an uproar.

LVMH Finance Belgique has lent more than 17 billion euros ($19 billion) to other companies in the group, holding 4.4 billion euros of its own funds, according to the unit's 2019 annual report.

Jean Di Francesco, a lawyer for the French tax administration, said that the Sept. 11, 2019 raids were justified given officials' suspicions.

“One can wonder whether there were sufficient means in Belgium to carry out the treasury activities,” Di Francesco said.

Meanwhile, Michot complained that the vast quantity of documents seized by tax officials “means it's materially impossible to effectively challenge” the raids.

“They took more than a million emails,” Michot said. “A lawyer who reviews emails can get through at best 200 emails a day. You'd need 5,000 days to review the emails.”

Big Taxpayer

Michot added that French tax authorities knew about the transfer of treasury activities to the Belgian unit more than a decade ago and said they couldn't be considered as support functions at the time.

She said the LVMH group -- which owns more than 70 brands from Dior to Fendi -- “is one of the largest taxpayers in France” and pays most of its taxes in the nation even though it doesn't carry out the majority of its activities there.

LVMH declined to immediately comment. The tax authority declined to comment.

Jérôme Turot, another lawyer for LVMH, said documents provided to an authorization judge to get the green light to carry out the raid breached tax-secrecy and privacy rules, in particular data concerning the head of the Belgian unit.

The judge was provided with information about all the bank accounts she opened since 1977 and the corresponding addresses even though such data should only be kept three years, Turot said.

Stock Options

The lawyer also complained that the authorization judge was provided information about some employees' salaries as well as the stock options and free shares staff members had benefited from.

Judge Elisabeth Ienne-Berthelot said a ruling on the validity of the raids would be issued on Sept. 9.

The tax case comes as LVMH's board has debated its planned $16 billion purchase of Tiffany & Co. amid reports that the deal might need to be reworked as the Covid-19 pandemic and protests in U.S. cities cloud the jeweler's prospects.

The Louis Vuitton owner on Thursday ruled out buying Tiffany shares on the open market even though they trade at a 15% discount to the agreed price of $135 a share.