Spain’s Supreme Court on July 15, 2025, issued a pivotal decision (STS 3721/2025) that brings much-needed clarity to the transfer pricing treatment of centralised treasury systems -- commonly known as cash pooling -- within multinational groups. This long-awaited ruling resolves several contentious issues that have been systematically challenged by the Spanish tax authorities in recent years, particularly regarding the remuneration of the cash pool leader and the application of the arm’s length principle.
The case involved a Spanish subsidiary of a multinational group that participated in a physical cash pooling arrangement[1] during fiscal years 2014 and 2015. Under this system, all participating entities’ bank accounts were swept to zero at the end of each day, with surplus or deficit positions transferred to accounts managed by the group’s leading entity. The interest rates applied to funds deposited and borrowed were asymmetric, with the differential serving as the remuneration for the cash pool leader. The Spanish tax authority (STA) challenged this structure, arguing that the interest rates should be symmetrical and that the cash pool leader’s role was purely administrative, not financial.
The Supreme Court’s decision, which confirms the positions previously taken by the Central Economic-Administrative Tribunal (TEAC) and the National Appellate Court, establishes two fundamental principles for transfer pricing in cash pooling systems:
Multinational groups should review their cash pooling structures, remuneration policies (especially asymmetric rates), and transfer pricing documentation in light of this decision. Special attention should be paid to the functional and risk analysis of the pooler entity and the justification of interest rates applied.
For further guidance or to discuss the implications of this decision, please reach out to your regular BDO contact or the author of this article.
Flavio Sánchez
BDO in Spain
The Case in Brief
The case involved a Spanish subsidiary of a multinational group that participated in a physical cash pooling arrangement[1] during fiscal years 2014 and 2015. Under this system, all participating entities’ bank accounts were swept to zero at the end of each day, with surplus or deficit positions transferred to accounts managed by the group’s leading entity. The interest rates applied to funds deposited and borrowed were asymmetric, with the differential serving as the remuneration for the cash pool leader. The Spanish tax authority (STA) challenged this structure, arguing that the interest rates should be symmetrical and that the cash pool leader’s role was purely administrative, not financial.
Key Findings and Doctrinal Principles
The Supreme Court’s decision, which confirms the positions previously taken by the Central Economic-Administrative Tribunal (TEAC) and the National Appellate Court, establishes two fundamental principles for transfer pricing in cash pooling systems:
- Symmetry of Interest Rates: The interest rate applied to both funds contributed and funds received by participating entities must be symmetrical. The Court rejected the notion that the cash pool leader could justify an interest rate differential by claiming to perform functions akin to a financial institution. Instead, the leader’s role is limited to administrative management and centralisation of funds, without assuming financial risks or making independent decisions.
- Group Credit Rating: The applicable credit rating for determining the arm’s length nature of intragroup loans within the cash pool should be that of the corporate group as a whole, not the individual borrowing entity. This reflects the reality that the risks are shared across the group and that the cash pool leader does not bear the risks typically associated with financial institutions.
Practical Implications for Multinational Groups
This ruling has significant implications for multinational groups operating in Spain:- Precise Delimitation of the Issues: The Supreme Court focused on two core transfer pricing questions: (i) whether the interest rates for funds contributed and received by group entities must be symmetrical, and (ii) whether the group’s credit rating, rather than that of the individual borrower, should be used for benchmarking purposes. This precise framing is crucial for practitioners, as it sets the boundaries for future controversy.
- Remuneration of the Cash Pool Leader: The Court emphasised that the cash pool leader should be remunerated as a low-value-added service provider, applying a margin to its costs, rather than earning a spread based on interest rate differentials. This aligns with the OECD Transfer Pricing Guidelines, which recommend limited remuneration for entities performing mere coordination or agency functions.
- Functional and Risk Analysis: The judgment underscores the importance of a thorough functional analysis, focusing on the actual functions performed, assets used, and risks assumed by each entity in the cash pool. The characterisation of transactions as deposits or loans must reflect economic reality, not merely contractual labels.
- Characterisation of Transactions: The Court rejected the characterisation of cash pool contributions as bank deposits, clarifying that, in the context of a physical cash pooling arrangement, these are in fact short-term intragroup loans. This distinction is not merely academic -- it directly affects the selection of comparables and the application of the arm’s length principle.
- Selection of Comparables: The selection of comparables must consider the group’s overall credit risk and the short-term nature of cash pooling transactions. The use of long-term loan references or individual entity credit ratings is inappropriate in this context.
Broader Impact and Next Steps
While the Supreme Court’s decision is technically case-specific, its reasoning is expected to influence the treatment of similar cash pooling arrangements across Spain and potentially in other jurisdictions. Defending asymmetric interest rates will be challenging unless the cash pool leader genuinely operates as a financial institution, with its own balance sheet, specialised staff, and regulatory status.Multinational groups should review their cash pooling structures, remuneration policies (especially asymmetric rates), and transfer pricing documentation in light of this decision. Special attention should be paid to the functional and risk analysis of the pooler entity and the justification of interest rates applied.
For further guidance or to discuss the implications of this decision, please reach out to your regular BDO contact or the author of this article.
Flavio Sánchez
BDO in Spain
[1] Physical cash pooling refers to a centralised treasury management system in which the actual balances of participating group companies’ bank accounts are physically transferred to a central account, usually held by the cash pool leader, at the end of each day. This process, often called “zero balancing,” leaves the subsidiaries’ accounts at zero and concentrates all excess funds or liquidity needs in the central account. Unlike notional pooling, where balances are offset only virtually, physical cash pooling involves real, daily bank transfers of funds.