Fashion designers Domenico Dolce and Stefano Gabbana have each been given a reduced, suspended sentence of 18 months in jail for a conviction on charges of hiding hundreds of millions of euro from Italian tax authorities.             

Italy's appeals court upheld a verdict issued last June against the pair on charges of using Luxembourg holding company Gado to avoid paying taxes on royalties of about €1bn.

The sentence was reduced from 20 months because the statute of limitations applied to certain facts in the case.

A lawyer for Dolce and Gabbana, who have always denied any wrongdoing, said they would appeal the decision. "I am speechless. We are all shocked. The judgment is inexplicable and we will appeal," Massimo Dinoia said after the judgement.

A Milan prosecutor had asked the court in March to clear the pair, who - in a protest last year at being "pilloried" – closed the Milan shops where they sell clothes and accessories inspired by Dolce's native Sicily.

The previous decision, by a lower court, handed the duo suspended jail sentences of 20 months each and imposed a fine of up to €10m over avoidance of the payments in Italy, where corporate taxes are among the highest in Europe.

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

Fashion companies have fallen under the scrutiny of Italy's tax authorities partly due to the fact the sector has performed well during the country's longest recession since World War II.

"Luxury is one of the few sectors to have done well in recent years," said a partner specialising in tax at Grant Thornton in Milan who declined to be named.

"It is easier to go and ask for money where there is money as opposed to going to a troubled sector."

The cases rarely come to court, however.

Giorgio Armani paid €270m to tax authorities in early April to settle a dispute over payments from the group's subsidiaries abroad.

Prada Holding, which controls Prada, paid a reported €400-420m to settle taxes in Italy after completing a process of voluntary disclosure in December.