On 3 March 2026, the Italian Tax Authorities (ITA) provided guidance (Ruling n. 58/2026) on the terms and conditions for a refund procedure to recover value-added tax (VAT) incurred in prior years that had been treated as non-recoverable.

The guidance follows the ITA's clarification on 12 February 2026 in Tax Ruling n. 7/2026 that VAT on transaction costs incurred by Italian special purpose vehicles (SPVs) set up in the context of merger-leveraged buyout (MLBO) transactions may be deductible, provided the costs are inherent to the taxable activity carried out by the target and the target performs transactions subject to VAT.

VAT refunds must be filed within two years of the certain applicable Supreme Court decisions (9 August 2024) and thus no later than 9 August 2026.

Background

Historically, the ITA has denied VAT recovery on transaction costs that SPVs involved in acquisition structures incurred, on the assumption that the SPVs qualified as "static holdings" (i.e., mere holders of shares) carrying out noneconomic activities.

This approach resulted in input VAT on advisory and transaction-related services (e.g., financial advisory, legal and tax due diligence) being frequently treated as nondeductible, even if the acquisition was functionally linked to a subsequent merger with an operating target.

This approach has been challenged by domestic jurisprudence. In particular, the Italian Supreme Court — on the basis of European Union Court of Justice (ECJ) case law — affirmed in Rulings n. 22608/2024 and n. 22649/2024 that expenses incurred in the preparatory phase of an economic activity may give rise to VAT deductibility, even if taxable outputs are generated only at a later stage (e.g., post-merger), provided that a functional link exists between the costs incurred and the downstream taxable activity.

Against this background, Tax Ruling n. 7/2026 marks a significant shift in the ITA's position, aligning it with caselaw and the principle of VAT neutrality.

Following this change in interpretation, the ITA addressed the issue of recovery of VAT incurred in prior years in its 3 March 2026 reply (Ruling n. 58/2026), setting out — in ITA's view — the procedural framework and time limits applicable to VAT recovery.

Detailed discussion

VAT deductibility on transaction costs

According to the ITA, in the context of an MLBO transaction:

• The SPV cannot automatically be regarded as a mere passive holding company.
• The acquisition of the target represents a transitional and instrumental phase of a preordained merger.
• Transaction costs incurred by the SPV qualify as preparatory expenses incurred in view of a taxable economic activity that will be carried out by the post-merger company.

As a result, input VAT on these transaction costs is, in principle, deductible, provided that the costs are functionally linked to the taxable activity of the target and the entity resulting from the merger carries out transactions subject to VAT. In line with ECJ decisions and domestic jurisprudence, the right to deduct VAT may arise even if taxable outputs are generated only after the merger is completed, because the relevant assessment must be made in relation to the functional link between the costs the SPV incurred and the target's activities and future operations.

Recovery of VAT incurred in prior years

For MLBO transactions completed prior to March 2026 in which VAT on transaction costs has been treated as non-recoverable, the taxpayer should determine whether the conditions for reclaiming VAT incurred in previous years are met.

In this respect, the ITA's interpretation, as stated in Ruling n. 58/2026, is that VAT incurred in prior years may only be recovered by filing a VAT refund request, rather than by filing a supplementary annual VAT return.

In particular, according to the ITA, the original treatment of VAT as non-recoverable does not qualify as an "error" in the VAT return, but rather was the result of a choice the taxpayer made in line with the interpretative framework prevailing at the time — including positions previously taken by the tax authorities themselves. On this basis, the ITA argues that the conditions for filing a supplementary VAT return in favor of the taxpayer are not met and VAT recovery may be pursued exclusively through the refund mechanism.

Note that these refund claims are subject to specific conditions, including:

• Evidence that the relevant invoices were duly recorded in the VAT ledgers in the year received
• Evidence that VAT was not deducted
• For VAT that was capitalized or expensed, confirmation that it has been recovered for corporate income tax purposes

Regarding the time limits for VAT recovery, the ITA further opined that the right to claim a refund arose once the interpretative framework started to change, notably following the 2024 decisions of the Italian Supreme Court (Cassazione ns. 22608 and 22649, deposited on 9 August 2024), which questioned the long-standing approach denying VAT deductibility to SPVs involved in MLBO transactions. On this basis, the ITA considers that the right to seek VAT refund can be exercised within two years from the moment the right is deemed to have arisen, as provided under Article 30­ter, paragraph 1, of Presidential Decree 633/1972.

As a consequence, VAT refund claims relating to prior years should be filed no later than 9 August 2026, which is two years after the date the ITA identified as the relevant starting point for the exercise of the refund right.

In this context, it should be noted that the ITA did not provide any guidance on whether the recovery is affected by the tax statute of limitations period (i.e., 5 years from the filing of the annual VAT return) or the civil law statute of limitations (i.e., 10 years).

Implications

Although the recent guidance represents a favorable development for taxpayers involved in MLBO transactions, VAT deductibility and recovery on transaction costs require a careful and fact-based analysis.

Each case should be assessed individually, taking into account the:

• Details and features of the transaction (MLBO structure, role of the SPV, timing, and content of the transaction)
• Functional link between the transaction costs and the company's taxable activity resulting from the MLBO
• Eligibility for filing a VAT refund claim and the applicable procedural requirements
• Relevant time limits and evidentiary requirements (including proof of the tax treatment applied to the non-deducted input VAT for corporate income tax purposes)

In this respect, the ITA clarifies that, to avoid undue enrichment, taxpayers must be able to demonstrate that any non-deducted input VAT claimed for refund has been neutralized for direct tax purposes.

In practice, if non-deducted VAT was either expensed or capitalized, the filing of a VAT refund claim may require a reassessment of the related corporate income tax (IRES) and regional productive activities tax (IRAP) treatment. This may involve corrective filings to eliminate any prior direct tax benefit derived from the VAT amounts.

Accordingly, taxpayers that have carried out MLBO transactions in the past, or are currently structuring such transactions, should assess whether, and to what extent, Italian input VAT incurred on transaction costs may be deducted or recovered.

Affected companies should consider contacting knowledgeable tax professionals for assistance in performing the relevant analyses and in initiating the VAT refund procedures.