Crefovi's newsletter: How Chanel kissed goodbye to France and fully embraced the United Kingdom, for tax reasons

How Chanel kissed goodbye to France and fully embraced the United Kingdom, for tax reasons

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In the background, far from grabbing headlines and the limelights, the shareholders of Chanel, the Wertheimer family, have relentlessly restructured and reorganised the Chanel business, since Brexit. Sensing a massive tax opportunity, Chanel has completed its Frexit in September 2022, kissing goodbye to the nosy and invasive strategies and idiosyncrasies of the French tax administration and control systems. The United Kingdom, and in particular London, is reaffirming its position as a tax haven for the rich and powerful, post Brexit, while France has lost one of its crown jewels, and does not even understand its massive financial loss, blinded by the belly-dancing charm offensive put up by Chanel’s top management in France. How did this happen?

1. Chanel: a corporate genesis

Gabrielle Chanel, whose nickname was Coco Chanel, founded the couture ?maison” ?Chanel” in 1910, in Paris, France. She was financially backed by her boyfriend, Englishman Arthur ?Boy” Capel, via a loan to rent her company’s offices at 21 rue Cambon, Paris. While, initially, the Chanel house was only selling hats, Coco Chanel quickly expanded into clothing, when she opened her first shop in Deauville, France, in 1912. In 1915, a second shop was opened in Biarritz, another French seaside resort town.

At the end of the first world war, Gabrielle Chanel paid back Arthur Capel’s loan, and became financially independent. She opened a third shop at 31 rue Cambon, in Paris, in 1918.

The 20s were an boom era for Chanel, and several new boutiques, ateliers and offices were set up, at 31 rue Cambon in Paris, and later at numbers 25, 27 and 23 rue Cambon in Paris. A boutique was also opened in Cannes, another seaside resort town on the French Riviera.

French perfumer, Ernest Beaux, suggested to Coco Chanel to create her own perfume, ?no5”, which, in 1921, was sold solely in Chanel’s boutiques, but then became available in perfumes retail shops around the world. ?Chanel no5” is one of the most sold perfumes in the world, even today.

In 1924, Gabrielle Chanel met, at the Longchamp horse racetracks, Pierre and Paul Wertheimer, two powerful French Jewish brothers who owned the Bourjois perfumes, among other businesses. Together, they create the company ?Parfums Chanel” (or ?Société des Parfums Chanel”), for the manufacturing of ?No5” on 16 April 1924. This new business is financially-backed by the Wertheimer brothers, and the shareholding of ?Parfums Chanel” is owned:

• at a stake of 10 percent,?by Gabrielle Chanel (in exchange for the transfer of ownership in her name, via a license, and a 2 percent share in the annual income on the perfume sales, i.e. around USD1 million in 1947);
• at a stake of 70 percent,?by the Wertheimers (who bear all financial risks), and
• at a stake of 20 percent,?by Théophile Bader (founder of the Paris department store, Galeries Lafayette, who introduced first Coco Chanel to the Wertheimers).

In parallel, Ms Chanel starts making makeup products, and in particular a “blood red” lipstick, from 1924 onwards.

Many more perfumes are created, from 1924 onwards: Ernest Beaux creates ?Gardénia” in 1925, ?Cuir de Russie” in 1927 and ?Bois des ?les” in 1928.

However, from 1928 onwards, Coco Chanel and the Wertheimer brothers starting having some disagreements. Ms Chanel considered that the Wertheimers were making money ?on her back” and became vocal about it, publicly shaming the Wertheimer brothers by calling them “bandits”. She also snubbed the board meetings of ?Parfums Chanel” and, consequently, in 1933, its shareholders decided to remove her from the management and board of their company. In 1934, she instructed a young lawyer, René de Chambrun, to defend her interests and renegotiate the 10-per-cent partnership she entered. But the lawyer-to-lawyer negotiations failed, and the partnership-percentages remained as established in the original business deal among the Wertheimers, Bader and Chanel.

Then, the second world war started and Gabrielle Chanel shamelessly collaborated with the nazis, denouncing the Wertheimer brothers as Jewish, in order to attempt to gain full control over the ?Parfums Chanel” business.

Following the war declaration in 1939, Coco Chanel closed down her couture house in Paris, leaving only her perfumes boutique opened. She went to live in the South of France, where she owned the beautiful villa ?La Pausa”, but came back to Paris the following year.

During the second world war, the Wertheimers fled to the United States. Gabrielle Chanel attracted the attention of the French Pétain collaborationist government, on the fact that the Bourjois and ?Parfums Chanel” companies had majority shareholders who were Jewish, using the laws against Jews and foreigners during the Vichy regime. But the Wertheimer brothers had transferred their shareholding in ?Parfums Chanel” and ?Bourjois” into the hands of a trusted, and non-Jewish, friend (Félix Amiot), acting as proxy, so Coco Chanel’s attempts to take over the shareholding of all the other shareholders in ?Parfums Chanel” failed.

At the end of the second world war, the Wertheimers got their shareholders in ?Parfums Chanel” and ?Bourjois” back. The ?war” with Coco Chanel continued until 1948, when the parties settled their dispute by renegotiating the 1924 contract that had established ?Parfums Chanel”: Gabrielle Chanel got her share in the turnover of ?Parfums Chanel” in 1948 (i.e. USD400,000 in cash (wartime profits from the sales of perfume ?No5”)), a 2 per cent running royalty from the sales of ?No5” ?parfumerie”, and a perpetual monthly stipend that paid all of her expenses. In exchange, Gabrielle Chanel sold to ?Parfums Chanel” the full rights to her name ?Coco Chanel”.

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Crefovi's live webinar:?How Chanel kissed goodbye to France and fully embraced the United Kingdom, for tax reasons?

24 January?2022 | 15:30pm London time

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Crefovi's live webinar will begin on Tuesday 24 January at 15:30pm London time (UK), and will provide an in-depth analysis on how the Chanel group left France, to restructure in London, in the UK.

You haven’t yet secured your free place for our upcoming webinar on how Chanel kissed goodbye to France?

Here is your chance to join?Annabelle Gauberti?on Tuesday 24 January 2023, 15:30pm London time (UK) as she explores the key points relating to the Chanel restructuring for tax reasons.

In this webinar, our expert speaker will discuss:

• Chanel: a corporate genesis;
• Chanel: a recent change of corporate structure which puts the UK on the map, post Brexit;
• the legal and tax takeouts from such restructuring, and Frexit, post Brexit.

Join live webinar here

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