The Court of Cassation in Rome overturned two lower court convictions, ruling that the designers committed no crime. It also acquitted the designers' tax accountant, two managers and Dolce's brother, bringing to an end a seven-year court battle.
"We have always been honest and we are extremely proud of this recognition by the Italian Court of Justice. Viva l'Italia," Dolce and Gabbana said in a statement.
Defence lawyer Massino Dinoia, reached by phone in Rome, called it "a resounding victory."
Prosecutors had argued that a Luxembourg company that owned the designers' trademark had been set up with the intent of evading Italian taxes. The acquittal would appear to dismiss that conclusion, but Dinoia said court's motives won't be clear until it releases its reasoning, due within 90 days.
The case sparked a spat with a Milan city official who, after their lower court conviction, said tax dodgers should not be permitted use of city spaces. The designers protested by closing their Milan stores for three days.
Experts say the corporate structure employed by the designers, selling the trademark to a Luxembourg-based company that then licensed the rights back, was a frequent practice for a period but has come out of vogue as legislation and tax rules change.
Dolce & Gabbana themselves transferred the Luxembourg company back to Italy after questions about its propriety first emerged, Dinoia said.
The pair had been found guilty in lower courts of failing to declare to Italian tax authorities 200 million euros ($268 million) in income earned through the Luxembourg company, despite a prosecutor's argument for dismissal.