Two recent rulings by the Spanish Supreme Court have emphasized the importance of establishing credible and solid transfer pricing evidence directly linked to the accurate delineation of related-party transactions. Similarly, a ruling by the Spanish National Court has amended the transfer pricing adjustment proposed by the Spanish tax authorities, as the authorities had disregarded market conditions and other clearly identifiable documentary evidence provided by the Spanish taxpayer.
Judgments 1746/2026, dated April 22, and 3721/2025, dated July 15, issued by the Spanish Supreme Court, focus on the regularization of the cash pooling arrangement in place within the Bunge Group that affects its Spanish subsidiary. Through these rulings, the Spanish Supreme Court has established an official position regarding two aspects: (i) the rejection of asymmetry in the applicable interest rates, and (ii) the consideration of the Group’s credit rating—rather than the individual ratings of the participants—for credit risk analysis in transfer pricing. In addition, the Supreme Court has also noted that, in the specific circumstances of the Bunge case, the lead entity does not actually assume any significant risk nor perform functions beyond the mere administrative management of cash flows that would justify high remuneration for that entity; therefore, its remuneration must be consistent with and tied to its functional profile.
These rulings are relevant because they establish an official position or doctrine of that court regarding certain aspects of how cash pooling is treated for transfer pricing analysis; however, for the purposes of this article, the key point is why the Supreme Court accepted the Spanish tax authority’s position in its reassessment. The answer to that question lies in the discrepancy between the documentary evidence provided by the taxpayer to justify its transfer pricing policy and the accurate characterization of the transaction. In particular, Bunge provided, as documentary evidence, a transfer pricing report prepared by an external consultant, which justified the interest rates applied (by conducting an external benchmarking analysis) and detailed the remuneration of the pool leader. The Spanish Supreme Court found that, although the report was technically accurate, it described a cash pooling system that differed in substance from the one actually implemented by the Bunge Group; in other words, the Supreme Court did not cite any incorrect technical criteria used in the analysis, but the actual cash pooling arrangement was different, so the conclusion reached cannot be applied to Bunge.
With reference to Judgment 2893/2025, dated June 19, the National Court overturned the Central Administrative Court’s position in its previous ruling, rejecting the Spanish Tax Authority’s stance, which had deemed the interest paid on a subordinated loan provided by the group to a related entity to be non-deductible in a transaction related to the acquisition of assets. This transaction took place in the context of an asset divestiture and restructuring imposed by the Spanish Market and Competition Commission to authorize the merger between Unión Fenosa and Gas Natural (later the Naturgy Group). This merger was primarily financed by external debt.
provided by several financial institutions, which also required shareholders to make a minimum investment through a capital increase as well as the aforementioned subordinated debt.
The Spanish tax authorities reclassified the loan as equity, stating that this transaction would not have taken place between independent parties, based on the following two arguments:
– (i) The agreed terms: long-term repayment, interest capitalization, high interest rates, and no covenants.
– (ii) The assumption that no third party would provide financing in this case because the borrower has no additional borrowing capacity after the initial external financing has been granted.
This position taken by the Spanish tax authorities was largely speculative, as it did not provide any credible or solid evidence regarding market conditions and financing for this type of merger-related transaction in the natural gas sector, nor did it include an independent external valuation of the borrower’s debt capacity.
On the contrary, the taxpayer provided two specific reports as evidence. The first report demonstrated that the taxpayer’s debt-to-equity ratio was in line with that of other entities in the sector and that the taxpayer already had additional borrowing capacity. A second report provided information about the gas sector, how it operates, and how it is financed, concluding that the structure of the transaction was reasonable and consistent with industry practice.
Based on the substantial documentary evidence provided by the taxpayer, the National Court not only accepted the taxpayer’s position but also reaffirmed that the Spanish Revenue Service had failed to provide both adequate evidence and sufficient knowledge regarding the behavior of players in the gas sector.
In conclusion, these statements clearly illustrate the importance of maintaining a proper link between the accurate characterization of any related-party transaction and the preparation and maintenance of robust and contemporaneous documentary evidence in the field of transfer pricing, as well as establishing strong and defensible mechanisms prior to any audit or appeal proceedings.
