The Supreme Court Sets Transfer Pricing Doctrine in Cash Poolings

On July 15, 2025, the Spanish Supreme Court issued its ruling 3721/2025, which is of notable relevance for transfer pricing, as it establishes doctrine concerning the analysis and evaluation of centralized treasury systems (cash poolings) within multinational groups.

The case analyzed in the judgement refers to a Spanish subsidiary of a multinational group participated, during fiscal years 2014 and 2015, in a centralized treasury management system managed by another group company. Under this scheme, the balances of all participating entities were “swept” from their current accounts, leaving them at zero at the end of each day (zero balancing), and the position (creditor or debtor) was transferred to the current accounts held with the leading entity. The interest rate applied was different depending on whether it was a loan received or funds deposited into the system, and that differential served in turn as the manager’s remuneration. The Spanish tax authority (STA) challenged this remuneration policy, arguing that the interest rate should be symmetrical for both positions, and that the contributions of funds could not be considered bank deposits, but rather short-term loans between non-financial entities. Furthermore, it rejected evidencing the arm’s length nature of the interest rates on the individual credit rating of the Spanish subsidiary and using a 5-year loans reference, instead of considering the group’s rating and the short-term nature of these operations. Lastly, the STA found that the leading entity was not carrying out functions or assuming risks typical of a financial institution, but merely performed administrative tasks, concluding that its remuneration could not be based on the interest rate differential, but should be paid for its management functions.

These conclusions were maintained by the Central Economic-Administrative Tribunal (TEAC) and the National Appellate Court. According to the TEAC, “it makes no sense for the profit to be located at the leading entity”, since the leading entity has no decision capacity on who borrows nor can it reject funds from a subsidiary (making it appropriate to attribute it mere administrative functions); and the group’s credit risk must be used as a reference for identifying comparables, given the pooler’s limited functions and the operation of the system, placing the lender and borrower functions within the group. The National Appellate Court (judgement dated March 23, 2023) highlighted that “there must be some symmetry when acting as lender or borrower, especially in a case where the pooler entity provides no added value.” The court reiterated that the leading entity’s role (in this case) is purely administrative, not comparable to that of a financial institution, and corresponding remuneration cannot consist of an interest rate differential, but should be paid “as a low value-added service provider, applying a margin to its costs.”

The Supreme Court has ended the dispute, confirming the previous instances’ decisions and setting jurisprudential doctrine. The Supreme Court decision regarding the cassational issue is clear and forceful: “In the specific circumstances of this appeal, we establish the doctrine that, regarding financing operations conducted in a centralized treasury system (cash pooling) by a multinational group, the application of the arm’s length principle entails that (i) the interest rate on contributed and received amounts by participating entities must be symmetrical; and (ii) the credit rating applicable to loan operations must be that of the corporate group and not that of the borrowing entity.”

In its reasoning, the Court supports the functional approach and technical analysis carried out by the Supreme Court and upheld by the National Appellate Court:

• It emphasizes the limited role of the leading entity: “Its function is centralization, assigning funds according to the requirements of participants and keeping records thereof. It operates on amounts or surpluses provided by participants as sole holders, without making its own decisions. Besides not generating or holding economic (or legal) ownership of the channeled liquidity and not making decisions, the leading entity also does not assume risks.”
• It challenges the characterization given by the Group to transactions when identifying comparable operations: “characterization of the operations, whereby contributed amounts are treated as deposits and amounts received by participants are treated as loans, must be rejected. In the overall cash pooling, only short-term loans granted by participants take place and, in no case, deposits.
• It considers that the remuneration applied in the case at hand is incorrect, since “[…] a differential arises from such interest rate asymmetry that is not market-admissible” and tends to transfer part of the taxable bases of the borrowers to the jurisdiction where the cash pool manager is located.
• It supports using the group’s credit rating instead of that of the subsidiary, since the funds transfers are operations integrated into the group’s overall financial strategy.

This said, the criteria set in this ruling are applied according to the specific circumstances of the case, “in view of the analyzed documentation and after carrying out the necessary functional analysis, in terms of functions performed, assets used, and risks assumed, in accordance with the Transfer Pricing Guidelines (…)”.

Nevertheless, and given that centralized treasury management systems in many multinational groups have features similar to those observed in the case at hand, the significance of this ruling is undeniable and should receive special attention from the perspective of the transfer pricing legislation, particularly regarding the functional and risk analysis of the pooler entity and the selection of comparables that justify the arm’s length nature of the agreed interest rate.