The Italian Revenue Agency ruled through Response No. 149 that cross-border UCITS mergers do not trigger capital gains or the 26% withholding tax under Article 10-ter of Law No. 77/1983 for Italian investors.
Italian investors holding shares in collective investment funds can now participate in cross-border UCITS (undertakings for collective investment in transferable securities) mergers tax-free. The Italian Revenue Agency confirmed this position on 20 July 2026 in Response no. 149, ruling on a transaction where Irish funds were being absorbed into Luxembourg sub-funds under the same management company.
The answer was no. Under Directive 2009/65/EC and Article 10-ter of Law No. 77/1983, which governs taxation of foreign investment schemes, the share allocation doesn’t trigger capital gains or the standard 26% withholding tax.
How the merger works and why it’s tax-neutral
The absorbed Irish funds are dissolved without liquidation, with all assets and liabilities flowing into the absorbing Luxembourg funds. Investors receive shares in the new funds at a fixed 1:1 exchange rate, maintaining their economic position unchanged.
The key question for the Revenue Agency was whether this share allocation constitutes a taxable event under Article 10-ter of Law No. 77/1983, which governs taxation of income from foreign harmonised collective investment schemes.
Italian tax law specifies the circumstances that trigger taxation: distributions of income during ownership, redemptions, sales of units, liquidations, and conversions between fund compartments (treated as a redemption followed by a new subscription). Fund mergers are not among these taxable events.
The reason is fundamental: a merger involves no divestment by the investor. The shareholder does not sell shares, receives no cash, and earns no income. The existing shares are simply replaced with shares of equal value in the absorbing fund.
EU legislation defines a merger as dissolution “without liquidation”—a transition that preserves the continuity of the investment relationship rather than ending it. A merger therefore cannot be treated as a transfer or liquidation of shares.
The Revenue Agency’s position aligns with its previous guidance in responses nos. 206/2024, 56/2026, and 69/2026, which confirmed tax neutrality for similar mergers between collective investment undertakings. This principle now extends explicitly to cross-border UCITS mergers between different Member States.
