Tax consolidation: the Supreme Court confirms the non-deductibility of interest on an extinguished intragroup receivable

With Order No. 24249, filed on 30 July 2026, the Italian Supreme Court (Corte di Cassazione) addressed the issue of the deductibility of interest expenses within the Italian national tax consolidation regime, establishing a significant principle for corporate groups. The case concerned a consolidated company that had deducted interest expenses accrued on intragroup receivables, which were subsequently challenged by the Italian Revenue Agency. According to the tax authorities, the creditor company had already waived its claim, meaning that the receivable (which was effectively extinguished) could no longer generate interest with tax relevance.

The company defended its position by arguing that the same interest amounts, deducted as costs by the consolidated subsidiary, had been correspondingly recognized and taxed as revenue by the consolidating company. In its view, this symmetry would have made the overall tax effect neutral at group level, rendering the tax assessment unjustified.

The Supreme Court rejected this argument. The tax consolidation regime does not transform a corporate group into a separate and autonomous taxpayer, nor does it override the ordinary rules governing the determination of each company’s taxable income. Each entity must calculate its own taxable income in accordance with the Italian Income Tax Code (TUIR), and only subsequently are the individual results aggregated through the algebraic sum of the group’s taxable income. Consequently, an expense item remains non-deductible even if another group company has correspondingly recognized and taxed the same amount as revenue.

The Court further clarified that interest income recognized by the consolidating company does not automatically offset the consolidated subsidiary’s deduction claim; rather, such income may affect the quantitative limitation on the deductibility of the consolidating company’s own interest expenses.

Finally, the Court ruled out the existence of double taxation: the tax authority had taxed only once the correct underlying issue, namely the absence of a deductible cost, and the tax treatment of the corresponding income side does not prevent the recovery of the undue deduction.