Bunge Iberica SA participates in the group’s cash pooling system, as both a borrower and a provider of funds.
Following an audit, the tax authorities had issued a notice of assessment in which the interest rates on deposits and withdrawals in the cash pool had been adjusted and determined symmetrically on the basis of a group credit rating.
Bunge Iberica SA filed a complaint which was rejected by the Tax Court in a decision issued in October 2019, and an appeal was then filed with the National Court. In March 2023 the National Court also rejected the appeal and confirmed the tax assessment.
An appeal was then filed by Bunge Iberica with the Supreme Court.
Judgment
The Supreme Court upheld the decison of the National Court and dismissed Bunge Iberica’s appeal.
Excerpt in English
“On this occasion, the function of the organising entity is limited. Its function is to centralise, allocating funds in accordance with the requirements of the participants and keeping records of this. The limited role played by this entity is fundamental, and this is emphasised in the settlement agreement. It operates on amounts or surpluses that have been contributed by the participants in the cash pooling as sole owners of the same, without the entity making its own decisions in this regard. In addition to not having generated or held the economic (or legal) ownership of the channelled liquidity and not making decisions, the lead entity also does not assume any risks. The risk is borne by the participating entities, while the managing entity remains on the sidelines. On the one hand, the former generate and hold the assets (funds) whose transfer they decide, assuming the consequences of such transfer (and the corresponding financial remuneration).
On the other hand, there is the managing entity, coordinating and keeping records of the allocation of third-party funds (not generated by itself) and lacking the capacity to decide on them (their allocation responds to the requirements of the participants). The characterisation of the transactions carried out by Bunge Ibérica, according to which the amounts contributed are treated as deposits and those received by the participants are treated as loans (credit lines, with or without availability fees), cannot but be rejected. In the cash pooling as a whole, only short-term loans granted by the participants (transactions between non-financial entities) take place and in no case deposits.
Based on the analysis of functions/assets/risks, in order to ensure the proper application of the principle of free competition, it has been shown that the substance of cash pooling is the participating entities. They share liquidity, which originates from normal operations (business operations or any other, corresponding to the activity carried out by each of the entities, which, as a result of this, have generated a surplus. These amounts contributed to cash pooling tend to vary over time, are not usually large, and do not have a stable frequency (since, if this were the case, it would mean that this ‘stable’ or idle surplus could be used in alternative investments to be tied up for a longer term, obtaining a higher return, thus ceasing to be available in the form of liquidity. Such surpluses are contributed to the cash pooling on a daily basis (remember that a daily sweep is expressly contemplated), forming a common pool of cash available to the entities requesting funds. As a result of the above, the contributions, considered individually, are characterised by variability and short-term nature. The opposite of this would be a loan (bank or otherwise) granted to a specific borrower for a considerable amount and for the medium or long term, which is precisely the scheme outlined in the report provided by Bunge Ibérica. In addition to the variability of the daily contribution, the cash pooling system is permanent in nature as a structural tool in the group’s operational functioning.”