The Italian Supreme Court with judgment n. 1372 of January 21, 2011 confirmed that a merger leveraged buyout is not abusive in itself and can be respected for tax purposes. In the transaction under scrutiny, a company member of a group obtained a loan from a third party and purchased 100 per cent of the stock of another company member of the same group. Immediately after the acquisition and as part of the overall plan, the acquired company merged into the acquiring company. As a result, the acquiring company was able to use its acquisition interest expenses to offset the income of the target. Historically, leveraged buyout transaction had been challenged as elusive and tax deductions had been rejected by the tax administration. The Supreme Court’s decision is important in the process of recognizing the general legitimacy of leveraged buyout arrangements in the Italian tax system.