Italian Tax Authority allows VAT refunds for expenses incurred for improvements
ItalyAccording to the Italian VAT Decree, VAT taxable entities can request a VAT refund only in specific cases, such as for the acquisition or import of depreciable assets. Previously, the Italian Tax Authority allowed the deduction of input VAT on improvements to third-party assets but denied the VAT refund right, tying it strictly to ownership. This led to years of litigation and conflicting case law. Some judgments supported the Tax Authority, while others upheld the taxpayer’s refund right when improvements were instrumental to the business.
The Supreme Court resolved the uncertainty by clarifying that "depreciable goods" under the Italian VAT Decree should be interpreted according to EU VAT principles. This includes expenses related to medium-to-long-term investments connected to the taxpayer’s business. Resolution No. 20 of 2025 acknowledges the VAT refund right for improvements on third-party assets held under lease, loan, or similar legal title, provided these activities are linked to the business over the medium-to-long term and meet general VAT deductibility requirements.
Key takeaway
Following the alignment of the Italian Tax Authority’s position with the Italian Supreme Court’s interpretation, taxpayers who have incurred expenses for improvements on third-party assets may:
- deduct the input VAT paid;
- report the resulting VAT credit in the following fiscal year;
- and now, also consider filing a VAT refund request.
However, in the latter case, a case-by-case assessment is recommended to verify whether all the necessary conditions are met, including the long-term business use of the asset.
