With Resolution No. 7 of 12 February 2026, the Italian Tax Authority confirmed the deductibility of VAT on transaction costs incurred in MLBO transactions, thereby superseding its previous contrary interpretation.
Key takeaways from the Resolution No. 7/2026 include the following:
- SPV entities in merger leveraged buy-out transactions may deduct VAT on transaction costs and consequently recover such tax burden, as such costs derive from activities forming part of an economic activity for VAT purposes under the EU VAT Directive and ECJ case law.
- Past transactions where VAT was not deducted: opportunity to file amended VAT returns and claim VAT refunds, subject to applicable statute of limitation.
- The Italian Tax Authority has reversed its previous restrictive approach, which treated SPVs (BidCo, NewCo) as passive holding companies, now recognizing that such entities perform a preparatory role for future taxable economic activity to be carried out after merger completion.
- This approach is consistent with recent case law and market practice prior to the Italian Tax Authority’s guidance.
- Transaction costs incurred by SPVs are considered preliminary investment expenses enabling future transactions of the merged entity.
The issue arose from the interpretation set out by the Tax Authority in Circular No. 6/E of 30 March 2016, subsequently reiterated in Public Opinion No. 17/E of 17 June 2019.
According to such view, the SPV (or BidCo or NewCo) in a MLBO cannot qualify as a “passive person” for VAT purposes, i.e., as a person that actual exercises an economic activity.
Consequently, SPV was treated as a passive holding company, that, under Italian VAT law, does not qualify as VAT taxable persons where the activity consists only in the mere holding of financial assets without any commercial activity.
This resulted in VAT being non-deductible, increasing overall transaction costs in contrast with the VAT neutrality principle.
The Italian Tax Authority amended its view in light of the ECJ case law (e.g., decision of November 12, 2020, Case C-42/19, Sonaecom SGPS SA) according to which the principle of VAT neutrality requires that the first investment costs incurred for the purpose of starting a taxable economic activity be considered as themselves expressing economic activities that confer the right to deduction.
It also considered the case law of the Italian Supreme Court (see Supreme Court, Section V, August 9, 2024, No. 22608 and Section V, August 9, 2024, No. 22649).
Given that, in the context of MLBOs, SPVs are established not merely to hold equity interests for the medium/long term, but to enable the investment, the transaction costs can be considered as costs that are preparatory to the commencement of the target company’s economic activity and therefore deductible for VAT purposes.
The SPV has a “preparatory” and “preliminary” role in the exercise of the economic activity that will be carried out as a result of the acquisition of the target company, following the reorganization achieved through the MLBO. The SPV, therefore, qualifies as a taxable person for VAT purposes pursuant to the nexus between the transaction costs and the taxable output transactions that will be carried out by the company resulting from the merger.