What are related-party transactions?
The law considers the following, among others, as related persons or entities:
- An entity and its partners or participants, when the participation is equal to or greater than 25%.
- An entity and its directors or administrators, except with regard to remuneration for the performance of their duties, including both de jure and de facto directors.
- An entity and the spouses or relatives, up to the third degree, of partners, shareholders, directors or administrators.
- Two entities belonging to the same group, understood according to the control criteria of article 42 of the Commercial Code.
- Two entities in which the same partners, shareholders or their relatives participate, directly or indirectly, in at least 25% of the share capital or equity.
The consequence is significant: the tax authorities can adjust these transactions when they deem that the agreed-upon terms do not correspond to those that independent parties would have accepted under similar circumstances. This can lead to valuation adjustments, changes to the corporate income tax base, and, in certain cases, the collection of tax payments, late payment interest, and potential penalties.
The common problem in many business groups
Most problems don't stem from deliberate fraud. Many companies simply grow without properly regulating how their subsidiaries, partners, or managers interact.
In practice, these types of groups often generate situations such as the following:
- Workers hired by one company who actually work for several.
- Internal loans without a contract or without defined interest rates.
- Cross payments between companies.
- Shared offices, vehicles or material resources.
- Holdings that bill for generic “management” services.
- Companies that assume expenses that benefit the entire group.
In many cases, these internal dynamics persist for years without clear formal regulation. The problem arises when the structure is subject to a tax audit, a review, or a conflict between partners.
And the tax authorities don't need to prove fraud to regularize a related-party transaction. It's enough to consider that the agreed-upon conditions don't correspond to market conditions or that the transaction lacks sufficient documentary justification.
The principle of free competition
Spanish regulations follow the so-called arm's length principle developed by the OECD. According to this principle, transactions between related parties must be valued under conditions equivalent to those that would have been agreed upon by independent third parties.
Therefore, the tax authorities may correct the valuation of certain transactions when they observe, among other circumstances:
- Prices or compensation far removed from market rates.
- Insufficiently accredited intragroup services.
- Duplication of expenses or artificial cost structures.
- Lack of economic justification for certain operations.
- Financial conditions that would hardly be accepted between independent third parties.
In practice, many regularizations do not derive solely from the amount of the transaction, but from the difficulty in justifying the economic and documentary logic.
Intragroup loans and financing
One of the most sensitive areas regarding related-party transactions is financing between companies within the group. It is common for certain entities to advance funds to other related companies through loans, supplier payments, internal current accounts, or centralized treasury systems.
These operations are perfectly valid from a legal and tax perspective. The problem arises when the financial structure is formalized in a contradictory manner or is difficult to justify from a realistic economic perspective.
In practice, it is not uncommon to find contracts that simultaneously classify the transaction as both free and remunerated, establish ambiguous grace periods, or incorporate financial clauses incompatible with the very nature of the transaction. In these cases, the risk usually stems not only from the agreed-upon interest rate, but also from the difficulty in arguing that the agreed-upon conditions correspond to those that independent parties would have accepted under comparable circumstances.
For this reason, the Corporate Income Tax regulations govern different methods for valuing related-party transactions, including the so-called comparable uncontrolled price method, currently provided for in article 18.4.a) of the Corporate Income Tax Law.
This issue has been analyzed recently by the Supreme Court in Judgment 985/2025, of July 15 (rec. 4729/2023) and, with reference to the previous one, in Judgment 503/2026, of April 24 (rec. 1142/2024), both relating to intragroup financing systems ( cash pooling ) used by multinational groups.
These rulings are particularly relevant because they serve as a reminder that, in matters of related-party transactions, the tax authorities and the courts do not limit themselves to examining the formal existence of the contract. The analysis must extend to the functions actually performed by each entity, the risks effectively assumed, and the overall economic rationale of the financial structure.
In these proceedings, the Supreme Court analyzed a treasury centralization system in which different companies within the group contributed and received funds daily through a physical cash pooling system with daily account sweeps. The legal controversy revolved primarily around two issues: whether there should be symmetry between the interest rates applied to the contributions and withdrawals of funds, and whether the relevant credit reference should be that of each company individually or that of the group as a whole.
The Supreme Court ultimately upheld, in the specific circumstances analyzed, the use of the group's credit rating and the existence of a mutual logic inherent in the centralized financing system. Furthermore, it insisted that these types of structures cannot be analyzed as if they were simply ordinary bank loans and deposits between independent third parties, but rather by considering the economic and functional reality of the intragroup system as a whole.
The practical importance of this doctrine extends far beyond large multinational corporations. The central idea underlying both rulings is perfectly applicable to many SMEs and family businesses: in related-party transactions, the economic coherence of the operation and the functional reality of the structure can be as relevant as the formal content of the contract itself.
Holdings and intragroup services
Another common focus of tax audits is the services provided by holding companies or group headquarters.
In many business groups, especially family businesses, it is common for one company to centralize certain functions shared by the other entities: business management, administration, human resources, accounting, sales coordination, or corporate strategy. From a legal and tax perspective, this structure is perfectly valid.
Problems arise when internal billing is limited to generic "management services" without proper supporting documentation or financial justification. In these cases, the tax authorities typically analyze whether the services were actually provided, how their cost was determined, what benefit each recipient company derived, and whether the internal allocation of expenses is reasonable.
For this very reason, in matters of related-party transactions, it is not enough to simply issue an invoice between companies within the group. It is essential to be able to demonstrate what functions the holding company actually performed, what personnel and resources it used, and why certain costs had to be borne by a specific entity within the group and not another.
The Spanish Tax Agency and the courts have been emphasizing for years the need to justify the actual existence of intragroup services. In this regard, the Supreme Court ruling of May 26, 2016 (appeal no. 2945/2014, ECLI:ES:TS:2016:2500), concerning the deductibility and justification of certain intragroup expenses and services, can be cited.
Sharing of technical and human resources
In many business groups, it is common for certain companies to share employees, offices, vehicles, equipment, or administrative structures. This practice is usually based on perfectly legitimate organizational and efficiency criteria, especially in family businesses or groups that have grown steadily around the same economic activity.
However, from a tax and accounting perspective, this type of structure requires a degree of internal consistency in the allocation of costs among the different companies within the group. Problems arise when a single entity incurs expenses that, in reality, effectively benefit all the related companies, without a subsequent, reasonably justified economic impact.
In these cases, the tax authorities may question both the deductibility of certain expenses and the correct valuation of related-party transactions between the different entities of the group.
Documentation of related-party transactions
One of the most frequent misconceptions in this area is the belief that documentation obligations regarding related-party transactions only apply to large multinational corporations. However, Article 18.3 of the Corporate Income Tax Law requires the retention of sufficient documentation to justify that transactions between related entities have been valued at market rates, although the specific scope of this obligation will follow the principles of proportionality and sufficiency, and will therefore depend on the nature of the transactions and the characteristics of the corporate group.
These documentary obligations are set out in the Corporate Income Tax Regulations.
In practice, this documentation usually revolves around intragroup contracts, the description of the operations carried out, the criteria used to determine their valuation, and the economic justification of the services or financing existing within the group.
Furthermore, certain related-party transactions must be specifically declared to the Tax Agency using Form 232 , regulated by Order HFP/816/2017. The obligation to file will depend, among other factors, on the type of transaction carried out and the legally established economic thresholds.
As a business group grows in size, the proper documentation of loans, intragroup services, cost allocation, and shared resource use ceases to be a mere administrative matter. In many cases, it constitutes the primary defense against future tax audits.
Therefore, it is advisable to periodically review how the economic relationships between the different companies within the group are structured and documented, especially in family businesses or groups that have grown steadily over the years. Proper analysis and planning not only reduce risks but also provide the group with a clearer and more organized internal structure.
