Supreme Court Ruling on Transfer Pricing and Cash Pooling Arrangements

Ruling of 15 July 2025 (Appeal No. 4729/2023)

The Supreme Court has recently issued a decision of great relevance for corporate groups that use centralized treasury structures (cash pooling).

In the case under review, several group companies participated in a “zero balancing” cash pooling system. Under this scheme, the bank balances of the subsidiaries were transferred to a central account, managed by another group entity, which redistributed funds when a subsidiary required liquidity.

The dispute concerned the interest rates applied to creditor and debtor positions, as well as the legal and tax characterization of these operations.

Key Principles Established by the Supreme Court

The Supreme Court, in line with the OECD Transfer Pricing Guidelines for financial transactions, established doctrine on several essential points:

• Symmetry of Interest Rates
  Interest charged to companies providing surplus cash must be symmetrical to the rates applied to companies receiving funding. It is not permissible to apply different interest rates for contributions and withdrawals within the same scheme.
• Reference to the Group’s Credit Rating
  The interest rate must be determined with reference to the overall credit rating of the multinational group, not the individual creditworthiness of each participating subsidiary.
• Functions of the Central Entity
  The company acting as the “head” of the cash pooling system merely received and redistributed funds, without assuming significant credit, market, or management risks. Consequently, the Court ruled that this entity cannot apply an additional margin or charge a higher interest rate for its intermediary function.
• Nature of the Transactions
  The Supreme Court rejects the characterization of the positions as deposits. These are intragroup loans, even though a centralizing entity is involved.
• Transfer Pricing Valuation Method
  The Court validated the comparable uncontrolled price (CUP) method as appropriate in this specific case, given that these were intragroup loans without value added or risks assumed by the central entity. However, other valuation methods could be used if the circumstances of the cash pooling were different, provided that the arm’s length principle is respected and the method is properly documented.

Practical Implications for Corporate Groups

Companies that currently have or are considering implementing a cash pooling system should:

• Review existing agreements to ensure that interest rates are applied symmetrically.
• Assess the credit rating reference used: it should reflect the group’s creditworthiness, not that of each subsidiary.
• Analyze the functions of the centralizing entity: if it does not assume significant risks, it should not be remunerated with an additional margin.
• Update transfer pricing documentation: justify the use of the CUP method or another appropriate method based on the actual economic circumstances of the operation.
• Avoid treating contributions as deposits, since the Supreme Court reclassified them as intragroup loans.