Holding companies and abuse of law: restrictions on the use of post-contribution cash?

Ruling no. 155/2026 issued by the Italian Tax Authority revisits the controlled-realisation regime under Article 177(2) of the Italian Income Tax Code (TUIR), confirming that the regime may apply even where no capital increase is carried out by the recipient company, subject to certain conditions. The ruling also provides interesting insights into the relationship between corporate reorganisations and the abuse of law doctrine, particularly with regard to the subsequent use of cash. Against this background, it’s unclear to what extent the rationale of the provision might influence the beneficiary company’s financial decisions.

Controlled-realisation regime even in the absence of a capital increase

In ruling no. 155/2026, the Italian Tax Authority (“ITA”) revisits the controlled-realisation regime provided for under Article 177(2) of the Italian Income Tax Code.

The case concerns an individual who holds a majority share in Alfa S.p.A. and is the sole shareholder of Beta S.r.l., and who intends to contribute his shares in Alfa to Beta. The taxpayer proposes to carry out the contribution without increasing the share capital of the recipient company, by allocating the entire value of the contribution, corresponding to the tax basis of the contributed shares, to an equity reserve. Among other objectives, the transaction is intended to channel future dividends received from Alfa to Beta, primarily for the purpose of funding new investments, while also preserving the unity of the controlling share in the operating company in anticipation of a future succession.

The specific feature of the case lies, however, in the fact that the shareholder also holds receivables against Beta arising from financing previously provided by the shareholder personally. Accordingly, part of the cash deriving from future dividends received from Alfa could also be used to repay such shareholder loans. The taxpayer therefore sought the Italian Tax Authority’s views on the entire sequence, contribution, distribution of dividends and possible repayment of the shareholder loans, including from an abuse of law perspective.

As regards the first issue, the ruling is consistent with a recent position taken by the ITA, according to which the regime under Article 177(2) of the Italian Income Tax Code may apply even where the contribution doesn’t entail an increase in the share capital of the recipient company.

The conclusion is based on the particular position of the contributor, who was already the sole shareholder of the recipient company prior to the transaction. Indeed, allocating even part of the contribution to share capital would not result in any material change in the shareholder's interest in the recipient company, and would therefore amount to a purely formal requirement.

In other words, it is sufficient for the contributor to already be the sole shareholder of the recipient company before the transaction.

The Italian Tax Authority’s position nevertheless remains framed as an exception to the general rule according to which the contributor should receive shares or quotas in the recipient company. Even following the amendment of Article 177 introduced by Legislative Decree no. 192/2024, the ITA continues to maintain that the controlled-realisation regime applies to contributions resulting in an increase in the recipient company's share capital, while allowing a contribution to be allocated exclusively to equity reserves where the contributor is already the recipient company's sole shareholder.

Holding companies and abuse of law: a tax advantage is not necessarily “undue”

The second issue addressed by the ruling is, however, of greater significance.

Expressly referring to the Ministry of Economy and Finance's Policy Statement of 27 february 2025, the ITA reiterates that an abuse-of-law analysis must begin by identifying an undue tax advantage. Where such an advantage is established, the analysis then proceeds to an assessment of the other elements of the abuse of law test, including the existence of non-marginal extra-tax reasons. Conversely, where no undue tax advantage is identified, no abusive arrangement can be said to exist.

Applying this approach, the ITA concludes that the contribution of the shares in Alfa to Beta, followed by the distribution of dividends to the recipient company, does not, in itself, give rise to any tax advantage that may be characterised as undue.

The contribution is regarded as consistent with the rationale underlying Article 177(2), which the ITA identifies as being to facilitate corporate reorganisations by allowing even individuals who do not carry on a business to centralise control of a company within a holding company. In the case at hand, the ITA also takes into account the intended future use of the cash in Beta's business activities, the strengthening of Beta's ability to access credit, and succession-planning considerations associated with preserving the controlling shares in the operating company as a single block.

Repayment of shareholder loans and the risk of an implicit restriction on the use of cash

The implication of the Italian Tax Authority’s favourable assessment, which is expressly subject to the condition that the resources arising from Alfa's dividends are effectively reinvested in Beta's business activities, is that, if those resources were instead used to repay the shareholder loans, this could potentially be regarded as inconsistent with the rationale underlying Article 177(2) and, consequently, as an indicator of an abusive arrangement.

This raises the question, however, of the extent to which the rationale underlying the provision may extend to governing the subsequent use of cash by the recipient company.

If the rationale of Article 177(2) of the Italian Income Tax Code is, as the ITA itself states, to facilitate corporate reorganisations and changes in ownership structures, it is not immediately apparent to what extent that objective may also constrain the subsequent use of cash received by the recipient company.

Naturally, the position would be different if the entire sequence of transactions had been structured from the outset for the sole purpose of effectively converting, through the interposition of a holding company, a dividend distribution to the individual shareholder into a tax-neutral repayment of a debt. In such a case, however, it would appear necessary to identify precisely the undue tax advantage at stake, while avoiding the conclusion that the mere use of cash to repay a debt should, in itself, constitute an indicator of abuse.

From this perspective, ruling no. 155/2026 appears to suggest an abuse of law assessment that is, to some extent, “conditional” upon subsequent conduct: the actual use of the dividends to develop Beta's business would confirm the genuine nature of the reorganisation, whereas the use of those funds to repay shareholder loans could lead to a different assessment of the same transaction.

This conclusion is all the more significant if, having dispensed with the formal requirement of a capital increase, the risk is that an implicit restriction on the use of the funds may instead be introduced, this time through the application of the abuse of law doctrine, without any express statutory basis.