Deductibility of Tax Interest: the Choice of Settlement Instrument Affects IRES

In its response to ruling request no. 185 of 15 October 2026, the Italian Revenue Agency clarified that interest paid to regularise one's tax position is not treated uniformly for IRES purposes, because deductibility depends on the instrument used: interest paid on judicial conciliation is deductible, whereas interest paid through voluntary correction (ravvedimento operoso) is not, even where the two settlements arise from the same matter and are finalised at the same time.

The clarification stems from the case of a company which, following a series of challenges to the undue deduction of VAT relating to several tax years, settled the first year, already the subject of litigation, through judicial conciliation, and regularised the subsequent years through ravvedimento operoso pursuant to art. 13 of Legislative Decree no. 472/1997. Precisely because of this twofold settlement, the company asked the Agency to confirm that all the interest paid was deductible and not subject to the limits of art. 96 of the Italian Income Tax Code (TUIR), being sums with no financial cause. In support of its position, it cited responses no. 541/2022 and no. 172/2024, which had already recognised the deductibility of interest paid on judicial conciliation and on assessment with adhesion, and argued that response no. 56/2025, which had excluded the deductibility of ravvedimento interest for a self-employed professional, could not be extended to business income because it was based on the rules governing self-employment income.

The Agency agreed with this approach only in part. As regards interest on conciliation, it confirmed its position, observing that such interest serves to compensate for the delay in collection and is not strictly ancillary to the tax obligation, with the result that, in the absence of a rule providing for non-deductibility, it follows the ordinary rules on business income and, as it does not arise from relationships with a financial cause, falls outside art. 96 of the TUIR. As regards ravvedimento interest, by contrast, it reached the opposite conclusion, starting from its classification as default interest under art. 13, para. 2, of Legislative Decree no. 472/1997 and referring to circular no. 180/E of 1998, which describes it as a generalised form of compensation for damage caused by late performance. On this basis, the Agency endorsed the principle expressed by the Italian Supreme Court in order no. 28740 of 4 October 2022, according to which the obligation to pay interest for late payment "is ancillary to the principal obligation and, therefore, is subject to the same rules of non-deductibility", and concluded that it is not deductible for IRES purposes, considering the question relating to art. 96 to be thereby absorbed.

In light of the above, the novelty of the response does not lie in the deductibility of conciliation interest, which was already admitted, but in the extension to business income of the non-deductibility of ravvedimento interest, which the Agency's practice had hitherto affirmed only for professionals in response no. 56/2025. This extension adopts a principle already expressed by the Italian Supreme Court in relation to a joint-stock company (order no. 28740/2022), which the Agency now makes its own for IRES taxpayers, basing it on a precise criterion: the nature of the interest depends on how the taxpayer settles its position, so that in voluntary regularisation it is default interest and follows the regime of the tax, whereas in the settlement of an assessment, through conciliation or adhesion, it is compensatory in nature and remains autonomous.

In practical terms, response no. 185/2026 shows that the choice of instrument used to settle one's position affects not only the amount of the penalties but also the tax treatment of the interest, which is deductible for IRES purposes if paid following judicial conciliation or assessment with adhesion, and non-deductible if paid through ravvedimento operoso. It follows that, before deciding how to regularise a dispute, this effect should also be carefully assessed: although it is not generally decisive compared with the penalty savings, it nonetheless affects the overall cost of the settlement and, for this reason, deserves to be considered from the outset.