Purchase of treasury shares and abuse of law: excluded where valid non-tax reasons exist

By judgment No. 18 of 12 January 2026, the Tax Court of Justice of second instance of Emilia-Romagna held that the purchase of treasury shares by a company, following the revaluation of the shareholdings by the selling shareholders, does not constitute abuse of law where the transaction is supported by concrete economic substance and non-marginal organisational reasons.

The case

The dispute arose from a tax assessment notice issued pursuant to Article 41-bis of Presidential Decree No. 600/1973, by which the Italian Revenue Agency challenged the company’s failure to apply the withholding tax provided for by Article 27, paragraph 1, of the same decree.

According to the Tax Authorities, the transaction through which the shareholders had transferred their shareholdings to the company — subsequently cancelled with a reduction of share capital — should have been reclassified as a withdrawal of the shareholders. On that basis, the sums paid should have been subject to the tax regime applicable to income from capital under Article 47 of the Italian Income Tax Code, with an obligation for the company to apply the relevant withholding tax, rather than to the regime applicable to miscellaneous income under Article 67 of the Italian Income Tax Code.

The Office also noted that the shareholders had previously revalued their shareholdings pursuant to Article 5 of Law No. 448/2001, paying the 4% substitute tax, and argued that the sequence of transactions had been artificially implemented in order to obtain an undue tax saving.

The Tax Court of first instance had upheld the position of the Tax Authorities, holding that the transaction did not constitute an actual exchange of assets, but substantially represented a means of regulating the shareholders’ withdrawal, with the resulting obligation to apply the withholding tax referred to in Article 27 of Presidential Decree No. 600/1973.

Hearing the company’s appeal, the Tax Court of Justice of second instance of Emilia-Romagna overturned the first-instance decision, excluding the existence of abuse of law.

The Court first referred to the principles set out in Article 10-bis of Law No. 212/2000, reiterating that the Tax Authorities bear the burden of proving jointly:

• the existence of an undue tax advantage;
• the absence of economic substance of the transaction;
• the essential nature of the tax advantage as the determining reason for the transaction.

In the case at hand, those requirements were considered not to be met.

In particular, the Court gave weight to the existence of valid, non-marginal non-tax reasons, identified in the need to stabilise a shareholding structure characterised by internal conflict and in the intention to make the ownership structure more suitable for the entry of new investors.

Those purposes, assessed from an ex ante perspective, were considered consistent with normal market logic and therefore capable of giving economic substance to the transaction.

A further element considered significant by the Court was the long period of time between the revaluation of the shareholdings in 2010 and the subsequent transfer of the shares to the company in 2017, a circumstance which weakened any hypothesis of a pre-arranged tax avoidance scheme.

The Court also noted the absence of any undue tax advantage for the company, an element that further contributed to excluding the existence of abuse of law.

The judgment follows the line of authority recognising the taxpayer’s freedom to choose between different optional regimes or between transactions involving different tax burdens, provided that the transaction is justified by actual economic reasons and does not amount to an artificial arrangement aimed exclusively at obtaining a tax saving.

This principle is consistent with Article 10-bis, paragraph 4, of the Taxpayer’s Bill of Rights, according to which transactions justified by valid, non-marginal non-tax reasons remain legitimate, even where they are capable of producing a tax saving.

The decision is of particular relevance in corporate practice, confirming that transactions involving the purchase of treasury shares followed by cancellation cannot automatically be reclassified as a shareholder withdrawal in the absence of concrete evidence demonstrating abuse.