Italy - Leveraged Buy-Outs and Foreign Shareholder Loans: Issues Arising from the Recent Approach of the Italian Tax Authorities

The Italian tax authorities recently issued an analysis of leveraged buy-out transactions, noting the possibility of recharacterizing shareholder loan agreements as capital contributions by applying paragraph 1.65 of the OECD Transfer Pricing Guidelines, which allows tax authorities to recharacterize structures in accordance with their economic substance. This note questions whether the Italian tax authorities’ concept of “economic substance” is compliant with accounting and finance tenets and is still applicable in light of the OECD’s BEPS Actions 8-10.