Refund of VAT not deducted on transaction costs in MLBO transactions: between operational challenges and persisting uncertainties

Abstract

With Ruling No. 58/2026, the Italian Tax Authority has taken a further step toward clarifying the VAT treatment of transaction costs incurred in merger leveraged buy‑out (MLBO) transactions. Building on the principles set out in Ruling No. 7/2026 and aligning, at least in substance, with the landmark decisions issued by the Italian Supreme Court on 9 August 2024, the tax Authority has expressly confirmed the taxpayer’s right to deduct VAT on transaction costs.

However, the procedural framework identified by the tax Authority for the refund of VAT relating to tax periods prior to 2024 raises significant concerns. In particular, the exclusion of amended VAT returns and the exclusive reliance on the so‑called “abnormal” refund procedure under Article 30‑ter of Presidential Decree No. 633/1972 introduce unnecessary rigidity, interpretative uncertainty, and a substantial procedural burden for taxpayers who acted in good faith within a regulatory environment designed by consolidated administrative guidance.

The case

The ruling concerns a special purpose vehicle (SPV) incorporated in connection with an MLBO transaction governed by Article 2501‑bis of the Italian Civil Code. Between 2020 and 2023, the SPV incurred significant transaction costs, including legal, tax, and financial advisory fees, as well as extensive due diligence services that were strictly instrumental to the acquisition of the target company.

Consistently with the interpretative position prevailing at the relevant time, the SPV did not exercise the right to deduct the VAT charged on such costs, although all invoices were duly recorded in its VAT registers. This conservative approach stemmed from the longstanding position of the tax Authority, which traditionally classified SPVs involved in leveraged acquisitions as static holding companies lacking VAT taxable status. On this basis, the Agency systematically denied the existence of the necessary direct and immediate link between the transaction costs and a VAT‑relevant economic activity, which constitutes a prerequisite for VAT recovery.

For many years, this approach led taxpayers to adopt a prudential stance, refraining from VAT deduction even where invoices were properly recorded, in order to avoid disputes and penalties.

A decisive shift occurred with Italian Supreme Court judgments Nos. 22608 and 22649 of 9 August 2024. In line with established case law of the Court of Justice of the European Union, the Supreme Court recognized that the activity carried out by an SPV in an MLBO context constitutes an economic activity for VAT purposes. On this basis, the Court affirmed the deductibility of VAT on transaction costs, rejecting the notion that the SPV operates as a mere passive entity detached from any VAT‑relevant economic activity.

The Revenue Agency formally endorsed this judicial orientation only in 2026, through Ruling No. 7/2026.

The tax ruling

The taxpayer sought clarification on the procedural mechanisms available to recover the VAT not deducted in the financial years preceding 2024. Two alternatives were submitted to the tax Authority: the filing of an amended VAT return in favour of the taxpayer, or the submission of a VAT refund claim pursuant to Article 30‑ter of the VAT Decree.

Ruling No. 58/2026 confirms the substantive right to deduct VAT on MLBO transaction costs. From a procedural perspective, however, the Authority excludes the use of the amended return and identifies the “abnormal” refund claim as the sole instrument available for recovering VAT relating to past tax periods.

The exclusion of the amended return is justified by characterising the taxpayer’s failure to deduct VAT as a “deliberate choice”, rather than as an “error or omission” within the meaning of Article 8(6‑bis) of Presidential Decree No. 322/1998. According to the tax Authority, a conscious decision – even if based on an interpretative framework subsequently overturned – cannot be rectified through an amended return.

Considerations

This solution appears questionable. The decision not to deduct VAT was not the result of a discretionary option exercised by the taxpayer, but rather a compelled and prudential compliance response to consolidated administrative practice.

Moreover, limiting recovery exclusively to the abnormal refund procedure entails longer processing times, increased formal requirements, and exposure to potential implicit rejections, often followed by litigation.

An additional element of concern relates to the identification of the starting point for the two‑year limitation period applicable to refund claims under Article 30‑ter. The Revenue Agency identifies 9 August 2024 – the date on which the Supreme Court judgments were issued – as the dies a quo for filing refund claims relating to invoices registered up to that date. Consequently, refund applications must be filed no later than 9 August 2026.

However, the ruling provides no official guidance for invoices registered after 9 August 2024, thereby creating a fragmented recovery framework.

A clarifying legislative or administrative intervention is therefore desirable to simplify and harmonize the recovery process and ensure an effective exercise of the right to deduction.