VAT Deductions in Merger Leveraged Buyout Deals: Emerging Opportunities under Italian Case Law

In this article the author discusses two recent landmark rulings of the Italian Supreme Court of Cassation that reshape the VAT treatment of merger leveraged buyout (MLBO) transactions, overturning prior interpretations by the Italian tax authorities. The Court affirmed that special purpose vehicles (SPVs) established for MLBOs are, in principle, entitled to deduct VAT on transaction costs. This right, however, is subject to a key condition: the post-merger entity must qualify as a taxable person and be itself entitled to deduct VAT. These decisions open new pathways for recovering VAT – both retrospectively and for future operations – while challenging the Italian tax authorities’ long-standing formal approach, signalling a potential turning point in the interpretation of VAT rules.