Intragroup Financial Transactions Under Increasing Scrutiny by Tax Authorities: A European Perspective. Part I Several European tax administrations—particularly those of Spain, Germany, and the United Kingdom—are intensifying their scrutiny of intragroup financial transactions within the framework of transfer pricing rules and anti-abuse provisions. Spain: Functional Analysis and Economic Substance In Spain, the Tax Agency (Agencia Tributaria) has outlined in its 2025 Annual Tax and Customs Control Plan a comprehensive audit strategy concerning intercompany financial transactions. This strategy reflects a system-wide or “360° view” aimed at assessing the economic and functional coherence of such operations, beyond merely examining their formal or quantitative attributes—such as the contractual interest rate. This updated approach aligns with Article 18 of the Spanish Corporate Income Tax Law (Ley del Impuesto sobre Sociedades, LIS), which mandates that related-party transactions be valued at arm’s length, understood as the value that would have been agreed between independent parties under comparable circumstances. Thus, the focus has shifted to include qualitative elements such as the actual debt capacity of the borrower, the existence of a genuine operational or financial need, the reasonableness of the loan amount, and whether a capital contribution would have been a more appropriate arrangement under market conditions. This substantive analysis is in line with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2022), particularly Chapter X, which stresses that the delineation of financial transactions must consider both their legal form and economic substance (see paragraphs 10.4 and 10.8). The burden of proof is increasingly placed on the taxpayer, who must demonstrate that the structure, terms, and rationale of the transaction are consistent with market behavior. Tomorrow, we will provide more detailed comments on these cases in Europe. 🌍 PKF Transfer Pricing is a leading global provider of transfer pricing services, including advisory, documentation, and controversy support. If you would like to learn more about our services, feel free to send us a message.