Transfer Pricing and Centralised Treasury Management

How a Spanish Supreme Court case ruling applies in the UAE

The Spanish Supreme Court ruling (STS 3721/2025) addresses the complexities of transfer pricing in the context of centralized treasury management (cash pooling) within a multinational enterprise (MNE). This ruling, involving Bunge Ibérica, S.A., provides valuable insights applicable to other jurisdictions, including the UAE, as the UAE increasingly focuses on transfer pricing regulations.

Delving into technical specifics, the case hinged on the appropriateness of Bunge Ibérica’s comparability analysis for intra-group financing. The Spanish tax authorities, supported by an ONFI (Oficina Nacional de Fiscalidad Internacional) report, contested Bunge Ibérica’s use of its individual credit rating to benchmark arm’s length interest rates, arguing that the group credit rating should have been applied due to the mutualized risk within the cash pool. Additionally, the ONFI report highlighted an “asymmetry in treatment,” questioning why Bunge Finance BV, the central treasury entity, applied higher interest rates to loans than it offered on deposits, essentially capturing a disproportionate share of the cash pool’s benefits despite performing limited functions beyond administration and management.

The core issue in the Bunge Ibérica case revolves around the tax authorities’ challenge to the company’s transfer pricing methodology for intra-group financing. The Spanish tax authorities argued that Bunge Ibérica should have used the credit rating of the entire Bunge group, rather than its individual credit rating, when determining the arm’s length interest rates for cash pooling transactions. They also questioned the asymmetry in interest rates between deposits and loans within the cash pool, suggesting that the benefits of the centralized treasury function should be shared more equitably among participating entities.

The Spanish Supreme Court sided with the tax authorities, establishing several key principles. The first has to do with group credit rating. Namely, for cash pooling arrangements, the credit rating of the entire MNE group should be considered when determining arm’s length interest rates, reflecting the mutualized risk within the group. Next, the court established that interest rates on deposits and loans within a cash pool should be symmetrical, ensuring that the benefits of the centralized treasury function are distributed fairly among participating entities. Finally, because of this ruling it becomes important that the facts presented and the way a cash-pooling is set-up, should dictate the methodology used to determine the arm’s length remuneration of the operation.

The UAE has been actively developing its transfer pricing regulations to align with international standards, particularly those outlined by the OECD. This ruling offers several important considerations for MNEs operating in the UAE. As in all arguments about the transfer pricing, the substance over form argument is apparent here. It essentially means that the actual economic activity and the allocation of risks and responsibilities within an MNE group are more important than the contractual arrangements. The Spanish court’s focus on the limited functionality of Bunge Finance BV highlights the importance of demonstrating genuine value creation by the central treasury function to justify any asymmetrical pricing.

The ruling also warns of increased scrutiny of intra-group financing. Intra-group financing, including cash pooling, is a common target for tax authorities worldwide, and increasingly so in the UAE. Following on to this, the ruling emphasizes using the group credit rating for cash pooling transactions.

The below table outlines how to the UAE TP Guide aligns with the findings of the case: