In its judgement of 25 May 2026, the Supreme Court examines whether the tax authorities may apply the rules on related-party transactions to deny the deductibility of expenses incurred by a Spanish subsidiary in dealings with independent third parties. The case concerns restructuring costs arising from the closure of industrial plants, primarily relating to redundancy schemes, severance pay and the termination of employment contracts.
The tax authorities considered that these costs should not be borne by the Spanish company, on the grounds that they stemmed from a strategic decision taken by the multinational group to relocate part of its production to countries with lower costs. To justify the adjustment, they applied Article 16 of the TRLIS —now Article 18 of the LIS— and the OECD Transfer Pricing Guidelines.
The regulations on related-party transactions have a specific scope
The Supreme Court rejects this approach and establishes an important legal principle regarding the scope of the rules on related-party transactions. According to the Supreme Court, these rules must apply exclusively to transactions carried out between related parties and cannot be extended to legal relationships with independent third parties.
In this case, the expenses in question related to obligations assumed by the Spanish subsidiary towards its own employees and other third parties, without there being a related-party transaction that would allow the transfer pricing rules to be applied.
The Supreme Court considers that the fact that the business decision giving rise to those costs was taken by the parent company or formed part of the group’s overall strategy does not automatically render such expenses a related-party transaction. The mere fact that a company belongs to a multinational group does not, in itself, allow any costs arising from the group’s strategic decisions to be subject to transfer pricing rules.
Relevance for multinational groups
The judgement thus defines the scope of the Administration’s powers in relation to related-party transactions and reinforces the need to identify a genuine transaction between related parties before applying these regulations.
This criterion is particularly relevant for multinational groups facing restructuring, closure or relocation of operations, as the costs incurred by Spanish subsidiaries in dealings with third parties cannot be disallowed under the transfer pricing rules solely on the grounds that they stem from the group’s strategic decisions.