Italy: MLBOs without a change of control get the green light – tax losses and interest can survive the merger (Rulings No. 160/2026 and No. 162/2026)

In two rulings No. 160/2026 and No. 162/2026, the Italian tax authority considered merger leveraged buy-outs (MLBOs) in which the acquisition vehicle did not gain control of the target. In the first case, it acquired a minority stake; in the second, it launched a tender offer on a target that its own group already controlled. In both cases, the tax authority's conclusion is favourable for taxpayers, with implications for how investment firms structure minority, co-investment and intra-group deals in Italy.

In short

• On a merger, tax attributes survive only if certain tests are met. In each case the acquisition vehicle failed both the “vitality test” and the net-equity threshold, so a ruling was requested to have those tests disapplied.
• The tax authority confirmed the full carry-forward of the vehicle's tax attributes (tax losses and excess non-deductible interest expense) because none of the anti-avoidance concerns the rule is designed to address were present. This matters, because the tax authority has in the past taken a restrictive approach to MLBOs that do not bring about a change of control.
• The same reasoning should support two conclusions the rulings do not address: the VAT deductibility of the vehicle's transaction costs, and the deductibility of the bank interest expense for the target after the merger.

The facts in brief

Ruling No. 160/2026: 

(i) A private equity fund set up an Italian acquisition vehicle (BidCo) through an Italian holding company. BidCo acquired a minority stake in the family-owned holding company of an industrial group, in two tranches: the first was funded with equity, and the second with a bank loan syndicated among a pool of lenders (acquisition, working capital and capex lines), in a structure typical of leveraged buy-outs. BidCo and the family holding company were then merged into the group's operating company. This was a “reverse merger”  carried out under Article 2501-bis of the Italian Civil Code, with accounting and tax effects backdated to the start of the financial year.

(ii) After the merger, the family retains majority control. The fund remains a minority shareholder, but holds veto rights on the board and blocking rights at shareholder meetings over certain key matters (the budget, M&A, incurring debt, and removing key managers). A call option that could have raised the fund's stake to 60% of the voting rights, exercisable within 18 months of the first closing, expired without being exercised.

(iii) The tax attributes for which carry-forward was sought – losses and excess non-deductible interest – derived almost entirely from the vehicle's management costs, transaction costs and financing costs.

Ruling No. 162/2026: 

(i) A newly incorporated Italian vehicle (BidCo) was held, through an intermediate holding company, by the parent company that already controlled a listed Italian target. BidCo launched a voluntary tender offer for the target's listed shares, followed by a squeeze-out and delisting. The offer was funded partly by equity from its shareholder and partly by a bank loan. Under the loan terms, BidCo had to be merged into the target within 12 months of signing, failing which the lender could demand immediate repayment. As in the first case, the merger was a reverse merger, with accounting and tax effects backdated to the start of the financial year, carried out under Article 2501-bis of the Italian Civil Code on a voluntary basis: the independent expert confirmed that this provision did not, strictly speaking, apply, because the target was already controlled by the acquirer's group before the offer.

(ii) BidCo generated tax losses (mainly from professional and running costs of the offer) and interest on the acquisition debt. Also in this case both tests were failed: BidCo had no revenue and no employees, and its net equity was negative once the contributions made in the preceding 24 months were disregarded. The target, by contrast, had no tax attributes of its own.

What the tax authority decided

The vitality test requires that revenue and labour costs in the year before the merger exceed 40% of the average for the two preceding years; the net-equity limit disregards contributions and payments made in the preceding 24 months. Both are, by definition, impossible for a newly formed vehicle to satisfy: it has no prior financial years, no employees, no revenue, and its net equity consists entirely of recent contributions.

In both rulings the tax authority disapplied both limitations on the basis of the same four factors: BidCo was newly incorporated specifically for the acquisition; it actually deployed the equity and debt raised to carry it out; on the assets side its balance sheet consists of the stake it acquired and, on the liabilities side, of the debt taken on to fund the acquisition; and its tax attributes derive almost exclusively from the costs and interest necessary for the acquisition.

Moreover, in Ruling No. 162/2026 the tax authority also confirmed that: (a) the limitations do not apply to losses generated within a tax consolidation that the merger does not interrupt; and (b) the tax attributes generated by BidCo before the merger cannot be transferred to the tax group, but can be used on a stand-alone basis.

The genuinely new point: consistent with previous guidance on MLBOs (Circular 6/E of 2016 and Rulings No. 234 and 235 of 2022), the tax authority confirmed that the vehicle remains “vital” because it performs a function instrumental to the transaction. On this basis, it confirmed that the tax attributes survive in both cases – even though, in Ruling No. 160/2026, only a minority stake was acquired, and, in Ruling No. 162/2026, the target was already controlled by the acquirer's group, so that the transaction brought about no change of control at all. The absence of a change of control was not, by itself, treated as an artificial feature. This is a favourable development: in an earlier case (Ruling No. 84/2023), the tax authority denied the survival of the tax attributes mainly because there was no change of control, combined with other features it considered artificial (a pre-existing vehicle and no new investors).

Although the tax authority expressly ruled out any assessment of the transactions under the general anti-abuse rule, some further considerations can be drawn from the conclusions reached in the two rulings.

The implications that follow (though not expressly addressed)

VAT on transaction costs. In Ruling No. 7/2026, the tax authority confirmed that an MLBO's acquisition vehicle is not a static holding company: it performs a role that is preparatory and instrumental to the target's future economic activity, and therefore qualifies as a taxable person for VAT purposes, entitled to deduct input VAT on transaction costs. Because Rulings No. 160/2026 and No. 162/2026 recognise the vehicle's instrumental role even where the acquisition does not bring about a change of control, the same VAT recovery treatment should apply to these deals: VAT on the vehicle's transaction costs should be recoverable, provided the target itself is not subject to restrictions on VAT recovery.

Bank interest after the merger. In Circular 6/E of 2016 the tax authority stated that:

(a) an MLBO does not, as a general rule, involve tax abuse, and interest on the acquisition loan should be deductible;

(b) the interest deduction may, however, be challenged in the case of “artificial transactions”, where the shareholders that previously controlled the target also invest in the acquisition (i.e. where there is no genuine change of control, see Rulings No. 142/2022, No. 395/2022 and No. 83/2024, relating to intra-group purchases of subsidiaries which were regarded as abusive); and

(c) the same remarks apply to the tests for the survival of tax attributes under Article 172(7) of the Italian income tax code (see also Ruling No. 83/2024). 

Circular 6/E of 2016 therefore applies the same criteria for identifying artificial transactions to both the interest deduction and the survival of tax attributes. Since neither Ruling No. 160/2026 nor Ruling No. 162/2026 identified any artificiality in an MLBO that does not bring about a change of control, in our view interest on the bank loan taken out to fund such an acquisition should likewise be deductible for the target after the merger. This conclusion is also supported by a further precedent (Ruling No. 169/2024), which concerned the buy-out of an exiting minority shareholder by two newly formed holding companies: there, the tax authority confirmed the deductibility of the interest by reference to the symmetry principle (i.e. interest deductible for the borrower is matched by interest income taxable for the lending banks).

To discuss the impact on your Italian transactions, please contact the authors or your usual Freshfields contact.