Two recent pronouncements from the Spanish Supreme Court have emphasized the importance of building a credible and solid transfer pricing evidence directly linked to the accurate delineation of related party transactions. In the same sense, a sentence from the National Spanish Court has amended the TP adjustment proposed out by the Spanish Revenue since the Revenue had ignored the market circumstances and other clearly identifiable documentary evidence provided by the Spanish taxpayer.
The sentences 1746/2026, of 22 April, and 3721/2025 of 15th July, emanating from the Spanish Supreme Court focuses the attention on the regularization of the cash pooling operative existing within the Bunge Group affecting its Spanish subsidiary. By means of these pronouncements, the Spanish Supreme Court has fixed an official position regarding two aspects, (i) the non-acceptance of the asymmetry in the interest rates applicable and (ii) the consideration of the Group’s rating, instead of the individual one of the participants, for credit risk analysis on transfer pricing. In addition, the Supreme Court has also mentioned that, in the specific circumstances of the Bunge case, the lead entity really does not assume any relevant risk nor develops functions beyond the mere administrative management of the treasury flows, to justify any high remuneration of that entity, so its remuneration has to be in line and tied with its functional profile.
These pronouncements are relevant because they lead to the fixation of an official position or doctrine of that Court in some facets in the treatment of cash pooling for transfer pricing analysis but, for the purposes of this article, the key point is why the Supreme Court accepted the position of the Spanish Revenue in its regularization. The answer to that question is the mismatch between the documentary evidence provided by the taxpayer to justify its TP policy and the accurate delineation of the transaction. In particular, Bunge provided as documentary evidence, a TP Report prepared by an external consultant, justifying the interest rates applied (by conducting external benchmarking analysis) as well as detailing the remuneration of the pool leader. The Spanish Supreme Court considered that, despite the report being technically accurate, it reflects a cash pooling system different from the one actually implemented by the Bunge Group in substance; in other words, no mention was made by the Supreme Court about a wrong technical criteria used in the analysis carried out but the real cash pooling case was another, so the conclusion achieved cannot be applied to Bunge.
With reference to the sentence 2893/2025, of 19th June, the National Court amended the position of the Central Administrative Court in its previous resolution, rejecting the position of the Spanish Revenue, which considered the interests paid in a subordinated loan provided by the group to a related entity as non-deductible, in an asset acquisition related transaction. This transaction was made in the landscape of an asset disinvest/restructuring imposed by the Spanish Market and Competence Comision to authorize the merger between Unión Fenosa and Gas Natural (afterwards the Naturgy Group). This merger transaction was mainly financed by external debt
provided by several financial entities, which also imposed the need of a minimum investment by the shareholders, by means of an increase of capital as well as the subordinated debt mentioned.
The Spanish Revenue requalified the loan as equity stating that this transaction would not exist between independent parties, based on the following two arguments:
– (i) The conditions agreed: long-term repayment, interest capitalization, high interest and no covenants provided.
– (ii)The assumption that no third party would provide financing in this case because the borrower does not have any additional debt capacity after the granting of the initial external finance.
This position of the Spanish Revenue was mainly argumentative, without providing any credible or solid evidence about the market conditions and financing of this type of merger related transactions in the gas sector, nor an independent external valuation of the debt capacity of the borrower entity.
On the contrary, the taxpayer provided two specific reports as evidence. The first one justifying both that the taxpayer debt/equity ratio was in line with other entities of the sector and that it already has additional debt capacity. A second report providing information about the gas sector, how it works and is financed, concluding that the structure of the transaction was reasonable and in accordance with the praxis of the sector.
Based on the robust documentary evidence provided by the taxpayer, the National Court not only accepted its position but also reaffirmed the lack of both the proper evidence delivered by the Spanish Revenue and enough knowledge about the behavior of the players on the gas sector.
In conclusion, these pronouncements demonstrate a clear example of the importance of maintaining a proper link between the accurate delineation of any related party transaction and the preparation and maintenance of robust and contemporaneous documentary evidence in the field of Transfer Pricing. building strong and defensible mechanisms before any audit or appellate proceedings.
