VAT Deductibility of Transaction Costs in MLBOs: SPVs, EU Law, and Italian Compliance

In MLBO transactions, SPVs are created to acquire and manage target companies, incurring transaction costs as part of their initial investment.
These transaction costs are considered preparatory expenses for taxable economic activity, granting the right to deduct input VAT.
The CJEU clarified that only entities intending to independently start an economic activity and incurring initial investment costs qualify as taxable persons for VAT purposes.
Passive holding companies cannot deduct VAT, but mixed holding companies providing taxable services to subsidiaries can.
Italy initially misaligned with EU VAT principles, prompting a complaint to the European Commission, but later aligned with EU law in 2026.

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.