MLBO and deductibility of VAT on transaction costs: the position of the Italian Revenue Agency

By Resolution No. 7 of 12 February 2026, the Italian Revenue Agency addressed the VAT treatment of transaction costs incurred by special purpose vehicles in the context of merger leveraged buy-out transactions carried out pursuant to Article 2501-bis of the Italian Civil Code, dealing with an issue that has long been subject to interpretative uncertainty in the practice of corporate acquisition transactions.

The issue concerns the possibility for the special purpose vehicle (SPV) to deduct VAT relating to costs incurred during the structuring phase of the transaction — such as legal, financial and tax advisory fees — in light of the requirements set out in Articles 4 and 19 of Presidential Decree No. 633 of 1972. As is well known, the right to deduct presupposes that the person claiming it qualifies as a taxable person for VAT purposes and that the goods or services purchased are used in the context of taxable transactions.

The issue is particularly delicate in the case of special purpose vehicles used in leveraged buy-out transactions, since such entities, during the initial phase of the transaction, do not normally carry out an independent economic activity but merely acquire the shareholding in the target company. Under a restrictive interpretation of VAT rules, this circumstance could lead to denying the status of taxable person, with the consequent non-deductibility of the tax paid on acquisition costs.

In the Resolution under review, however, the Italian Revenue Agency acknowledges the development of EU and national case law, according to which expenses incurred during the preparatory phase of an economic activity must also be regarded as an expression of economic activity for VAT purposes. From this perspective, the acquisition of the shareholding in the target company represents a merely instrumental phase preceding the subsequent merger between the special purpose vehicle and the acquired company, which constitutes the moment when the economic activity is actually carried out.

The Italian Revenue Agency therefore recognises that, in the context of an MLBO transaction, the special purpose vehicle cannot be treated as a static holding company intended merely to hold shareholdings. Rather, it performs a function instrumental to the acquisition and subsequent management of the economic activity of the target company, with the result that the costs incurred to carry out the transaction must be classified as investment expenses preparatory to the exercise of an economic activity.

The conclusion reached in the Resolution appears consistent with the principle of VAT neutrality and with the approach adopted by the Court of Justice of the European Union and the Italian Court of Cassation in relation to expenses preparatory to an economic activity. However, the very classification of the transactions as preparatory activities highlights one of the most delicate issues in the practice of leveraged buy-out transactions: demonstrating the functional link between the costs incurred by the special purpose vehicle and the economic activity that will be carried out downstream of the transaction.

From a prudential perspective, the deductibility of VAT on transaction costs presupposes that the MLBO transaction is structured consistently with the economic rationale justifying the creation of the special purpose vehicle and its subsequent merger with the target company. In the absence of such functional link, the risk is that the SPV may be classified as a mere holding company, with the consequent challenge to the deduction of VAT and possible recharacterisation of the transaction from a tax perspective.