What's the purpose of foundations in fashion? Actually there are many: from preserving art to saving on taxes

This year, in fashion circles, there has been a lot of talk about foundations. Valentino Garavani and Giancarlo Giammetti opened theirs to the public this year, for example, after almost a decade of philanthropic activity; and Giorgio Armani, when drawing up his will, entrusted his company precisely to the foundation that bears his name. But in Milanese fashion there are many foundations, and they are often very different from one another. The “Foundation” par excellence is that of Prada, but there are also foundations named after Carla Sozzani, Zegna, Gianfranco Ferré, Nicola Trussardi, the one of Antonio Ratti that works in the textile field, or that of Pitti Discovery.

Broadening our view to Europe, we find the foundations of the Pinault family, that of Louis Vuitton, that of Yves Saint Laurent and Pierre Bergé, that of Cartier, and the famous Ellen MacArthur Foundation, which is well known to anyone following developments in fashion sustainability. In short, there are many foundations and they perform many functions: they are museums, archives, companies, funders, cultural operators. Yet, faced with this multiplicity of roles, the term “foundation” seems like an umbrella under which many different entities, born with different purposes, operate with different missions. So what exactly is a foundation?

What is a foundation and what does it do?

A foundation is a private non-profit institution that is created when one or more individuals, a company, or even an entire family decides to permanently allocate an endowment — that is, a portion of their assets (which can range from simple money to buildings, collections of objects, works of art, or historical archives) — for purposes of public interest. Instead of remaining the property of those people or entities, the foundation becomes a kind of “armored safe”, separate from its founders and their possible descendants, who cannot take back what has been given.

Every foundation has a specific mission. They usually exist to support medical or scientific research, preserve and fund a particular cultural heritage, restore monuments, support certain individuals, or finance public works. In the fashion field, the core mission of many foundations is to preserve historical archives or clothing collections almost as if they were a museum, but in reality foundations do a bit of everything. The Zegna foundation, for example, deals with environmental conservation, contributions to the arts, and education, among other things; the Sozzani Foundation is a cultural operator focused on dissemination and education for young creatives; the one named after Ferré exists to preserve the designer’s memory.

The law recognizes two types of foundations. One is the grant-making foundation, which essentially acts like a bank that manages and invests an endowment and then distributes the money toward its chosen mission — as the name suggests, it serves to disburse funds. The other type is the operating foundation, such as Fondazione Prada or the Louis Vuitton foundation, which “operates” directly by organizing its own activities, exhibitions, educational courses, and so on. Fashion foundations are almost all of this second type, as it allows 100% control over their image and the quality of the activities themselves.

How is a foundation’s money managed?

As non-profit entities, foundations pay far fewer taxes than other types of companies. In Italy, for example, they do not pay taxes on income from their endowment or on institutional income. They do, however, pay taxes on commercial activities — such as VAT on tickets or merchandise — as well as registration, stamp, and cadastral taxes if they acquire property or land, taxes on the buildings they own (though with certain discounts and exemptions if their purpose is cultural), and finally payroll taxes on their employees. But the money a foundation earns is not enough to be self-sustaining, so they depend on external entities that, by donating funds, manage to pay less tax themselves.

Suppose there is a foundation linked to a fashion brand. If the brand company earns 100 million, without doing anything it pays 24 million in taxes and is left with 76 million net to keep or distribute as dividends. But if it donates those 100 million to the foundation, Italian law allows it to deduct a very significant part of that sum from the taxable income. So the taxes to be paid become much lower, yet the foundation still receives the full 100 million. The real cost to the brand is far less than 100 million because it only gives up the net amount it would have kept after ordinary taxes, while the foundation receives the entire amount.

If the donation also falls under the Art Bonus scheme (e.g., the restoration of a public asset or a project approved by the ministry), the brand receives an additional very substantial tax credit for the next three years. In this way, for every 100 million donated to the foundation, the company actually spends much less. So instead of splitting the initial 100 million into 24 million in taxes and 76 million in net profit, the brand will pay much lower taxes and the foundation can spend those millions on all the projects it wants. This is precisely why so many fashion brands or luxury groups prefer to channel money into foundations rather than keep it on their own balance sheets — it’s a win-win: they do philanthropy, gain a huge image return, and enjoy a significant tax break.

Who controls foundations?

From a strictly legal standpoint, a foundation is an autonomous and separate entity from the company or individuals who created it. Obviously, however, whoever creates and finances it is also the one who controls it, so the founder (whether an individual or a company) can appoint its president, board of directors, artistic director, and so on.

In essence, it is a homeowner who does not live in the house. Commonly, the people appointed are always trusted figures — from family members to people who already work for the brand, etc. In many fashion-foundation cases, the foundation’s independence exists on paper, but in the end it is still the entity that puts in the money that decides what activities to carry out, when to do them, where to invest the money, and how to manage the image and name of the foundation itself. This allows for the creation of very sophisticated corporate structures.

The Armani example

In Armani’s case, for instance, Giorgio Armani created the eponymous foundation in 2016 and, before passing away, arranged everything so that upon his death, as explained by Il Sole 24Ore, 100% of the company’s shares would automatically pass to the Foundation itself (as full ownership of 10% and bare ownership of the remaining 90%). Upon his death, the company — valued at up to 12 billion euros — thus became the property of the Foundation, which initially holds 30% of the voting rights. There are of course heirs and family members who retain usufruct and most voting rights in the short term, but the real ultimate “owner” is the Giorgio Armani Foundation, which, as such, is obliged to respect the original mission, ensuring that the brand remains Italian, independent, and faithful to the Armani style for as long as possible.

It was a true masterpiece of planning: as noted by La Repubblica, the company avoided inheritance taxes worth hundreds of millions, the business is protected from immediate family divisions and hostile takeovers, and a gradual, orderly transfer path is planned (up to 54.9% in 5–8 years) to a major luxury group or, alternatively, a stock-market listing. Naturally, the Foundation will invest the company’s dividends in cultural activities such as exhibitions, public restorations, scholarships and grants, historical archiving, and so on. By using the nature of a foundation and the bare-ownership structure, he managed to transform a private company into a protected cultural heritage for decades to come. As a famous poet would say, a monument more lasting than bronze.

Takeaways

- In the world of Italian and European fashion, private foundations have become an increasingly widespread tool for preserving archives, collections, and cultural heritage, while also strategically managing brand image, succession, and taxation for major luxury houses.

- A foundation is a non-profit entity endowed with an inalienable asset base dedicated to purposes of public interest; in fashion, it is almost always an “operating” foundation, meaning it directly organizes exhibitions, educational activities, and cultural projects.

- Thanks to tax exemptions and generous deductions (especially through the Art Bonus scheme), donating money or assets to one’s own foundation costs the brand far less than the full amount the foundation actually receives, creating a win-win mechanism of philanthropy and tax savings.

- Although legally autonomous, fashion foundations remain de facto controlled by the founders or families that finance them, allowing total control over image and activities without dispersing assets among heirs or risking hostile takeovers.

- Giorgio Armani’s case is the most sophisticated example: by transferring full ownership of the company to the Giorgio Armani Foundation upon his death, he avoided hundreds of millions in inheritance taxes, safeguarded the brand’s independence, and turned a private company into a protected cultural asset for the indefinite future.