Italy: Deductibility and VAT Recovery for Maintenance Costs on Leased Property

The Italian Supreme Court (ordinance No. 14783/2026) held that maintenance/renovation costs incurred by a business on a leased property can be deductible for IRES/IRAP and allow VAT recovery if the works are concretely connected to the business activity.
The key test is the property’s instrumental role in the enterprise; it does not matter whether the works are ordinary or extraordinary, nor that the landlord ultimately benefits from the improvements.
Relying on the Sezioni Unite decision No. 11533/2018, the Court reaffirmed that VAT deduction is available for work on third-party property where there is a real nexus with current or prospective business activity, without focusing on alleged abuse or evasion.
The same substance-over-form approach applies to direct taxes through the principle of business relevance/inherency of costs, though VAT deductibility and cost deductibility remain distinct analyses.

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.