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Reverse merger after an acquisition: the Italian Revenue Agency allows the acquisition vehicle’s losses to be carried forward in three cases
In rulings (risposte a interpello) No. 160, No. 162 and No. 172 of 2026, the Agenzia delle Entrate agreed, in the cases examined, that the limits on carrying forward the losses and interest expense of an acquisition vehicle merged into the target company do not apply. What matters is the function the vehicle performed in the acquisition, not the fact that it had no employees or revenue.
Buyers of a business often set up an acquisition vehicle which, after the purchase, is merged with the target company. The vehicle usually has no employees or revenue and fails at least one of the tests that Article 172 of the Consolidated Income Tax Act (Testo unico delle imposte sui redditi, TUIR) lays down for carrying forward losses, interest expense and ACE surpluses (notional interest deduction) after a merger. In brief:
- in the Agency’s view, what matters is the function the vehicle performed in the acquisition, not the absence of employees or revenue;
- the limits were disapplied both in acquisitions financed partly with debt and in acquisitions financed with equity, including the purchase of a minority stake;
- in the most recent ruling, the disapplication also covers the tax attributes of the target company.
Why the vehicle fails the tests
In acquisitions the purchasing company is often set up for the purpose and, once the purchase is completed, is merged into the target company: this is a reverse merger. Where one company has borrowed to acquire control of the other and, as a result of the merger, the assets of the latter become general security for, or a source of repayment of, that debt, the Civil Code also requires the formalities of a merger following a leveraged acquisition (Article 2501-bis).
For tax purposes, Article 172, paragraph 7, of the TUIR (from 2027, Article 172, paragraph 7, of Legislative Decree No. 117 of 19 June 2026) restricts the carry-forward of losses of the companies taking part in a merger, including the absorbing company. The provision was rewritten by Legislative Decree No. 192 of 13 December 2024, which, for companies whose financial year is the calendar year, applies to mergers carried out from 2024. It was then amended by Decree-Law No. 84 of 17 June 2025, converted into law by Law No. 108 of 30 July 2025, which changed the calculation of the equity limit where a sworn valuation report is obtained, with the same start date as the 2024 decree. There are two conditions.
- Vitality test. In the financial year preceding the one in which the merger takes effect, revenue and income from the core business and the cost of employees and related social security contributions must exceed 40 per cent of the average of the two previous financial years. Following the reform, the same test, with the figures annualised, also applies to the period from the start of the financial year to the date on which the merger takes effect.
- Net equity limit. Each company may carry forward losses only up to the amount of its own equity. Without a sworn valuation report, the limit is book equity, excluding contributions and capital payments made in the previous twenty-four months. With a sworn valuation report, the limit is the economic value of equity at the date on which the merger takes effect, reduced by twice the contributions and capital payments made in the previous twenty-four months.
Paragraph 7-bis (from 2027, paragraph 8) extends the same limits to the loss of the interim period, from the start of the financial year to the date on which the merger takes effect, where the tax effects of the merger are backdated; paragraph 7-ter (from 2027, paragraph 9) extends them to non-deductible interest expense carried forward under Article 96, paragraph 5, of the TUIR (from 2027, Article 105, paragraph 5) and to ACE surpluses. In the Agency’s words, the provision is aimed at the trade in ‘tax shells’ (bare fiscali): mergers with companies that have no productive capacity, carried out to offset the losses of one company against the profits of the other.
A recently formed acquisition vehicle generally fails these tests. It has no employees or revenue of its own; its equity derives largely from shareholder contributions which, if made in the previous twenty-four months, reduce the equity limit; its losses arise from transaction costs, such as advisory fees, and from interest on the acquisition debt. If the limits applied, losses and interest above them could not be carried forward after the merger.
Three rulings, three different transactions
| Ruling | Transaction | Tax attributes examined |
|---|---|---|
| No. 160 of 12 August 2026 | A private equity fund acquires, through a vehicle, a minority stake in the family holding company that controls the operating company; the first tranche is paid with equity, the second with a bank loan. The vehicle and the holding company are then merged into the operating company. | Losses and excess interest expense of the vehicle |
| No. 162 of 14 August 2026 | A newly formed company, belonging to the shareholder that already controlled the listed company, launches a voluntary tender offer for all the shares, financed mainly by a bank; this is followed by the purchase of the remaining shares, delisting and the reverse merger. | Losses, almost entirely due to the advisory costs of the offer, and excess interest expense of the vehicle |
| No. 172 of 15 September 2026 | A vehicle set up by investment funds acquires the whole share capital of the operating company in two stages, with equity; the reverse merger follows. | Losses, interest expense and ACE surpluses accrued up to 2023, of both the vehicle and the target company |
In all three cases the Agency concluded that the limits of Article 172, paragraph 7, of the TUIR do not apply to the tax attributes examined. As regards the ACE, Legislative Decree No. 216 of 30 December 2023 repealed the regime from the tax period following the one in progress on 31 December 2023, while preserving the surpluses accrued up to that period.
The test applied: the function of the vehicle
The reasoning is common to the three rulings. The vitality of the vehicle is not measured in the abstract, by revenue and employees, but in relation to the role it played in the transaction. In the Agency’s view, the avoidance effect that the provision targets does not arise where the vehicle was set up specifically to acquire the shareholding, actually used the resources and financing it received for that purpose, has assets consisting almost entirely of the acquired shareholding and liabilities linked to the purchase, and holds tax attributes deriving from the costs and interest of the acquisition. In such cases, as the Agency puts it, the merger with the target is the normal outcome.
Each ruling adds something.
- Ruling No. 160 applies the test to the purchase of a minority stake: the function of the vehicle matters even where the investor does not acquire control.
- Ruling No. 162 confirms it for a vehicle whose losses derive almost entirely from the advisory costs of a tender offer financed mainly with bank debt. The Agency points out that, since the target heads a domestic tax consolidation group, the vehicle’s tax attributes can be used only against the income of the absorbing company (Article 7, paragraph 1, of the Ministerial Decree of 27 June 2025).
- Ruling No. 172 concerns an equity-financed acquisition and goes beyond the vehicle: the target company too, which passed the vitality test but not the equity limit, may carry forward its own tax attributes. The vehicle, conversely, met the equity limit but failed the vitality test.
The relationship with intra-group transactions
Legislative Decree No. 192 of 2024 also introduced Article 177-ter of the TUIR (from 2027, Article 179 of Legislative Decree No. 117 of 2026), implemented by a decree of the Minister of Economy and Finance of 27 June 2025: the carry-forward limits do not apply to losses accrued in periods in which the companies concerned already belonged to the same group, nor to losses that were already subjected to the limits when the company joined the group or afterwards. In ruling No. 172 the Agency brought under this rule the vehicle’s loss for 2024, accrued in the period to which the merger was backdated, whereas the tax attributes accrued up to 2023, to which Article 177-ter does not apply, had to be examined under Article 172.
A ruling request is useful, but not mandatory
A taxpayer ‘may’ ask the tax authorities, by way of a ruling request (interpello), to disapply anti-avoidance provisions that restrict tax attributes otherwise allowed, by showing that in the specific case the avoidance effects cannot arise (Article 11, paragraph 1, point (d), of the Taxpayers’ Bill of Rights, Law No. 212 of 27 July 2000). In order No. 5419 of 11 March 2026, in a case governed by the previous rules, the Italian Court of Cassation held that a taxpayer who did not file a ruling request may still prove in court that there was no avoidance purpose. A company that carries losses forward without a ruling should therefore be ready to make the same case if it is audited.
A ruling binds the tax authorities only on the question raised and only as regards the applicant (Article 11, paragraph 5); each ruling also states that it is given on the basis of the facts submitted, taken as presented. The three rulings are therefore indicative of the Agency’s approach to similar transactions, but they do not extend to other taxpayers.
What to do in practice
- Document the transaction from the outset. The vehicle’s deed of incorporation and corporate purpose, the financing plan, the actual use of resources, and the composition of assets, losses and interest: these are the elements on which the Agency based its conclusions.
- Run the tests for each company. The vitality test and the equity limit must be checked for each company taking part in the merger, including the absorbing company; for vitality, the period between the start of the financial year and the date on which the merger takes effect must also be considered. A sworn valuation report may increase the equity limit, but not always: in that case twice the recent contributions and capital payments are deducted, so the result should be compared with the limit calculated on book equity.
- Separate the losses covered by Article 177-ter from the others. Losses accrued when the companies already belonged to the same group, and those already subjected to the limits when the company joined the group or afterwards, fall under Article 177-ter; the others remain subject to Article 172.
- Consider whether to file a ruling request. It is not mandatory, but a favourable ruling gives certainty on the case described; without a ruling, the disapplication must be supported by documentation prepared from the start of the transaction. It is also advisable to check in the instructions to the tax return form whether and how the disapplication must be reported.
From 1 January 2027 these rules will be contained in the new Consolidated Income Tax Act (Legislative Decree No. 117 of 19 June 2026): Article 172 keeps its number, but paragraphs 7-bis and 7-ter become paragraphs 8 and 9, Article 177-ter becomes Article 179 and Article 96 becomes Article 105.
Sources
Agenzia delle Entrate, rulings (risposte a interpello) No. 160 of 12 August 2026, No. 162 of 14 August 2026 and No. 172 of 15 September 2026
Presidential Decree No. 917 of 22 December 1986, Articles 96, 172, paragraphs 7, 7-bis and 7-ter, and 177-ter (text in force on 24 October 2026); Legislative Decree No. 117 of 19 June 2026, Articles 105, 172 and 179 (text applicable from 1 January 2027)
Legislative Decree No. 192 of 13 December 2024, Article 15; Decree-Law No. 84 of 17 June 2025, converted into law by Law No. 108 of 30 July 2025, Article 2; Legislative Decree No. 216 of 30 December 2023, Article 5
Law No. 212 of 27 July 2000, Article 11; Civil Code, Article 2501-bis
Italian Court of Cassation, Fifth Civil Section, order No. 5419 of 11 March 2026
However, the three rulings apply to the transactions described and to the facts submitted by the applicants: a vehicle that performs functions other than the acquisition, or whose losses have a different origin, must be reviewed afresh.
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