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Cash Pooling and Transfer Pricing: recent developments and trends

published on 29 September 2025 | reading time approx. 4 minutes

Cash pooling arrangements have long been a recurring topic in the field of transfer pricing. Recently, however, they have come under increased scrutiny by tax authorities and are frequently the subject of tax audits. Against this backdrop, it is worth taking a closer look at recent regulatory developments and case law that are highly relevant for multinational groups. Indeed, with judgment no. 998 of January 10, 2024, the Court of Cassation had once again ruled on an issue of great importance for multinational groups: the classification of cash pooling agreements for transfer pricing purposes. The decision offers significant interpretative insights, particularly with regard to the "zero balance cash pooling" scheme.

The case originates from a tax audit conducted on Alfa S.r.l.¹, an Italian company wholly owned by the Irish company Beta¹. In 1999, the two companies entered into a cash pooling agreement formally structured as a "zero balance system," which provided for the daily transfer of credit and debit balances to a centralized account.

However, the analysis conducted by the Italian Financial Police (ital. Guardia di Finanza) showed that, in the period 2000-2005, Alfa S.r.l. only transferred credit balances to the parent company, without ever receiving funds in the opposite direction. This circumstance led to the conclusion that the interest rates applied did not reflect market conditions. Furthermore, the flows did not take place on a daily basis, and the Italian company had sufficient liquidity to operate independently.

On the basis of these elements, the Italian Revenue Agency (ital. Agenzia delle Entrate) reclassified the relationship as a medium- to long-term intra-group loan, disguised as cash pooling, and proceeded to recover the presumed interest income, calculated on the basis of the average “RendiStato”², rate, pursuant to Article 110, paragraph 7, of the Testo Unico delle Imposte sui Redditi.

Alfa S.r.l. challenged the assessment notice before the Tax Court, obtaining a favorable outcome in both the first and second instances. The judgments on the merits had in fact highlighted the error of the Italian Revenue Agency's actions, annulling the tax assessment. Subsequently, the Italian Revenue Agency appealed to the Court of Cassation.

The Court of Cassation confirmed the favorable outcome for the taxpayer already established in the two levels of jurisdiction mentioned above, reiterating that the reclassification of a contract as anti-avoidance requires the presence of serious, precise, and consistent elements. In the absence of such conditions, the reversal of the burden of proof on the taxpayer cannot apply.

However, the Court of Cassation also recognized the logical correctness of the reclassification made by the tax authorities, noting that the contract in question did not have the typical characteristics of a "zero balance cash pooling" arrangement. In particular:

transfers did not take place at the end of the day, but at longer intervals;
only excess amounts were transferred to the parent company;
the Italian subsidiary never resorted to intra-group credit;
the Italian company maintained sufficient liquidity to operate independently.

According to the Court of Cassation, these elements constitute a genuine contract for the provision of excess liquidity, comparable to an intra-group loan.

The ruling is in line with established case law (Court of Cassation nos. 14730/2009, 7215/2015, 14759/2015, and 34457/2018), which requires the tax authorities to prove that intra-group transactions do not comply with normal value. However, it enriches the interpretative framework by emphasizing the importance of also assessing the factual and operational aspects of cash pooling agreements.

Already in 2021, the Lombardy Regional Tax Commission (ruling no. 1847/2021) had ruled out the possibility of "zero balance cash pooling" in the presence of unidirectional flows and constantly increasing debit balances. With this ruling, the Court of Cassation clarifies that indicators such as the unidirectionality of flows, the absence of daily zeroing of balances, and the lack of effective centralized liquidity management can support the reclassification of cash pooling agreements as intra-group loans. However, the recovery of taxation requires a thorough and adequate investigation. In the case in question, the Court of Cassation rejected the tax claims due to a lack of serious, precise, and consistent evidence, thus ruling in favor of the taxpayer.

Judgment No. 998/2024 nevertheless offers an important point for reflection for multinational groups: the contractual form alone may not be sufficient to guarantee the tax neutrality of intra-group transactions. It is advisable that treasury management be consistent, in practice, with the principles of reciprocity, symmetry, and arm's length remuneration in order to reduce the risk of disputes with the tax authorities.

[1] The company name shown is the result of an editorial change aimed at protecting confidentiality.

[2] The "RendiStato" is a reference index published by the Bank of Italy, calculated as the weighted average of the gross effective yields of government bonds listed on the secondary market. It is often used as a benchmark to assess the cost of public debt or to index financial instruments (such as mortgages or bonds).