Italy’s Tax Agency Aligns Rules with EU, Benefiting M&A Deals

For years, the Italian Revenue Agency systematically denied the deductibility of value-added tax on transactions incurred by special purpose vehicles, or SPVs, in merger leveraged buyouts. This created disadvantages for deal economics and for Italy’s competitiveness in cross-border mergers and acquisitions.

But the Revenue Agency formally abandoned its longstanding restrictive administrative practice on Feb. 12, aligning itself with the Italian Supreme Court and the European Commission—removing any residual uncertainty and establishing a clear and predictable framework.

Resolution No. 7/2026 confirms that SPVs involved in merger-leveraged buyout transactions qualify as VAT taxable entities and may deduct input VAT on transaction costs, due to their preparatory role in the economic activity ultimately carried out by the post-merger entity.

The convergence of Supreme Court jurisprudence, European Commission endorsement, and the Italian Revenue Agency’s formal alignment, transforms what was historically a defensive legal argument into a genuine strategic opportunity. This alignment reshapes deal economics and opens a strategic window for market participants.

Market participants who in prior years refrained from deducting VAT on merger leveraged buyout transaction costs—often relying on restrictive administrative guidance—should now consider reassessing their historical VAT positions.

Historical VAT leakage can be recovered, and future transactions can be structured with an enhanced level of certainty.

Reshaping the Landscape

In a merger leveraged buyout, a newly incorporated SPV acquires a target company using external debt and later merges with the target (either directly or inversely), shifting the acquisition debt onto the surviving entity.

Historically, the Italian Revenue Agency systematically denied VAT deductibility on transaction costs incurred by SPVs in buyouts, treating such vehicles as passive holding companies and therefore as non VAT taxable entities.

This restrictive approach diverged from the EU principle of VAT neutrality and from the evolving case law of the Court of Justice of the European Union. The result was a structural disadvantage for Italian transactions, with irrecoverable VAT inflating transaction costs and eroding returns.

A series of pivotal developments has reshaped this landscape:

• Supreme Court jurisprudence: With decisions Nos. 22608 and 22649 of August 2024, Italy’s highest court recognized that SPVs in merger leveraged buyouts aren’t mere passive holders but are entities engaged in preparatory and instrumental activities essential to the acquisition and subsequent merger with the target. Such activities—and the related transaction costs—are integral to the economic activity of the post-merger entity. The court held that denying VAT deductibility in these circumstances would contravene both the principle of neutrality and the structure of the EU VAT Directive.
• European Commission endorsement: Following a complaint filed by the Milan section of the Italian Association of Chartered Accountants, the European Commission endorsed the Supreme Court’s reasoning and confirmed its consistency with EU law. This EU-level confirmation strengthens legal certainty for cross-border deal planning and legitimizes the taxpayer-friendly interpretation at the European level.
• Italian Revenue Agency alignment: the Revenue Agency reconsidered its position adopted in previous administrative practice (Circular No. 6/E of March 30, 2016 and Legal Opinion No. 17/E of June 17, 2019), in which the SPVs were classified as a static holding companies. The agency now clarifies that such a classification can’t be applied automatically to SPVs involved in merger leveraged buyouts, and instead must be assessed in light of their actual economic role.

Technical Guidance

Under the revised framework, the deductibility of VAT on transaction costs in merger leveraged buyouts is based on two core requirements:

• Economic activity test: The SPV must demonstrate that it’s engaged in activities aimed at enabling taxable supplies, including preparatory actions leading to the merger.
• Direct link: Transaction costs must be directly linked to the overall taxable activity of the merged entity.

The CJEU repeatedly has affirmed that preparatory activities, supported by objective evidence and aimed at commencing an economic activity, confer VAT taxable entity status and the right to deduct input VAT, even if no taxable outputs have yet been realized.

The European Commission’s position clarifies and legitimizes the Supreme Court’s interpretation, providing robust legal certainty for taxpayers, and opening a window for market players to challenge restrictive administrative positions and to pursue VAT recovery with renewed confidence.

Going Forward

The European Commission’s endorsement of the Italian Supreme Court’s approach represents a turning point.

The resulting framework legitimizes a taxpayer favorable interpretation, aligns Italian practice with EU standards, and opens a concrete opportunity for the recovery of VAT on historical transactions.

For market participants, private equity sponsors, industrial groups and their advisers, this is the moment to act with strategic foresight. The timely use of the refund mechanism under Article 30 ter of Presidential Decree No. 633/1972, supported by robust documentation and a clear articulation of the underlying economic activity, can unlock significant value and restore competitive neutrality to the Italian market.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Gaetano Salvioli is a partner with Bird & Bird.

Annarita De Carne is counsel with Bird & Bird.

Edoardo Ferrerio is a tax associate with Bird & Bird.

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