In this case, the Italian Revenue Agency had denied the right to deduct VAT for the vehicle company, based on European case law that does not recognize the status of a taxable person for VAT purposes for “static” holding companies, i.e., those that merely hold shares without actively managing the controlled companies.
However, the Court rejected the Revenue Agency’s appeal, reiterating the principle that VAT deduction is subject to two conditions: the entity must have the status of a “taxable person,” and the goods or services purchased must be intended for taxable transactions or transactions assimilated for deduction purposes. Therefore, the vehicle company can deduct VAT if, following the merger with the target, it is considered a taxable entity, and the purchases of goods and services are instrumental to the merger operation.
The Court emphasized that, in the context of an MLBO, the acquisition of shares in the target company by the vehicle company is merely a transitional and instrumental phase for the merger between the two entities. Unlike static holdings, the vehicle company is created with the objective of acquiring and directly managing the target, enhancing its economic and financial structure through a pre-planned merger.
Therefore, even if the goods and services purchased by the vehicle company are not immediately used for an economic activity, they are still considered necessary for the subsequent start of such activity. The VAT taxable status of the vehicle company does not cease simply because active operations begin at a later time.
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