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UPDATE 1-Gucci owner Kering agrees to 1.25 bln euro Italy tax settlement

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PARIS/MILAN, May 9 (Reuters) - French luxury goods group Kering said on Thursday it had agreed to pay 1.25 billion euros ($1.40 billion) to settle a dispute with Italian tax authorities centered on its fashion brand Gucci.

The settlement, first reported by Reuters last month, is the highest ever agreed by a company with Italian tax authorities.

Kering, which had denied avoiding tax, has a cash pile estimated by analysts at more than 10 billion euros, meaning it was equipped to absorb the cost.

The company said under the settlement it would face an additional tax charge of 600 million euros in its 2019 financial accounts.

"The settlement will involve the payment of 897 million euros in additional taxes, along with further payment for penalties and interest," Kering said, adding that the total came to 1.25 billion euros.

The allegations centred on Gucci, which Italian tax authorities accused of evading taxes on more than 1 billion euros in revenues over several years. Gucci offices in Milan and Florence were raided by Italian police in late 2017.

Gucci revenues were booked through Kering's Swiss-based subsidiary Luxury Goods International and Italian prosecutors argued that tax should therefore have been paid in Italy, not Switzerland.

Kering said in its statement that it acknowledged prosecutors' claim that Gucci had a "permanent establishment" in Italy during the 2011-2017 period under scrutiny.

Gucci is Kering's star brand and drives most of its profits after a flamboyant remake under designer Alessandro Michele.

($1 = 0.8906 euros) (Reporting by Sarah White and Emilio Parodi; Editing by Sudip Kar-Gupta and Jane Merriman)