Input VAT Deductibility on Pre-Leasing Payments in Lease-to-Build Contracts
Abstract
By order no. 28210 of 1 November 2026, the Italian Court of Cassation held that input VAT on pre-leasing payments in lease-to-build contracts is immediately deductible before the physical delivery of the real estate, provided that such expenses are directly linked to the entrepreneur's economic programme and instrumental to business activities. The Supreme Court underscored the structural divergence between the EU principle of VAT neutrality—which ensures prompt deduction for investment assets based on intended business use—and corporate income tax rules governing period matching and depreciation under the TUIR, where expense deductions remain deferred until actual operational deployment. This article analyzes the practical and accounting implications of the ruling for corporate finance, the ten-year adjustment framework under VAT law, and the evidentiary standards required to repel tax authority assessments.
Key Legal Takeaways
- Immediate deduction on pre-financing instalments: Input VAT charged on pre-leasing payments settled prior to the completion and handover of the building is deductible in full where the asset forms part of the corporate investment plan.
- Autonomy between VAT and direct income taxes: The temporal deferral of cost deductions until operational deployment under Articles 102 and 109 of the Consolidated Income Tax Act (TUIR) does not extend to harmonised value added tax, which is governed by the principle of fiscal neutrality.
- Assimilation to capital investment goods: In accordance with European Union case law, entering into a finance lease aimed at ownership transfer produces immediate contractual effects and is assimilated to the acquisition of depreciable capital assets.
- Management of the burden of proof: To defeat tax authority challenges alleging lack of economic rationale, the taxpayer must substantiate qualitative and prospective business relatedness through corporate resolutions, sworn technical appraisals, and preliminary agreements.
