USA Trends and Developments Contributed by: Sean Lyons, Nicholas Wilkins, Kevin Spencer and Kim Marie Boylan, White & Case LLP
Chevron deference Chevron provided a long-standing framework for fed - eral courts to consider an agency’s legal interpreta - tion, mandating a two-step analysis. Under Chevron , a court first determined whether the statute being examined was ambiguous. “If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unam - biguously expressed intent of Congress” ( Chevron at 842–43). If the statute “is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construc - tion of the statute” (Id). That is, the second step asked whether the agency’s interpretation of an ambiguous statute was reasonable. If so, the “court may not sub - stitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency” (Id at 844) and was required to defer to the agency’s interpretation. Loper Bright’s Reversal The sole question considered by the US Supreme Court in Loper Bright was “whether Chevron should be overruled or clarified” ( Loper Bright at 384). The Court was clear that “Chevron is overruled” (Id at 412). Loper Bright explains that “[c]ourts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority” (Id). Courts may no longer simply defer to a reasonable agency interpretation; instead, courts must determine wheth - er an agency rule or regulation is consistent with the “best reading” of the law. A notable feature of Loper Bright is that, even though the decision overrules Chevron , it expressly does not overrule prior decisions that relied upon Chevron . “The holdings of those cases that specific agency actions are lawful… are still subject to statutory stare deci - sis despite our change in interpretive methodology. Mere reliance on Chevron cannot constitute a special justification for overruling such a holding, because to say a precedent relied on Chevron is, at best, just an argument that the precedent was wrongly decided” (Id at 412 (internal quotations omitted)).
Instead, the substantive transfer pricing rules are explained in the Treasury Regulations promulgated under Section 482. Although the current Section 482 regulations were introduced in the early 1990s, the US Department of the Treasury (the “Treasury”) has issued regulations implementing Section 482 and its prede - cessors that date back to the 1930s. The Treasury has also amended and added to the current regula - tions throughout the past 30 years. The regulations presently in effect are extensive, spanning hundreds of pages, and providing detailed rules on compliance with Section 482. Understanding and defining the position of agency regulations in the hierarchy of law has been a persis - tent issue in the USA, spawning thousands of court decisions and countless academic articles. However, until very recently, the Section 482 regulations have enjoyed the substantial deference afforded to fed - eral agency pronouncements by Chevron, USA Inc v National Resources Defense Council, Inc , 467 US 837 (1984) (“Chevron”), and its progeny. Thus, successful challenges to the Section 482 regulations have been few and far between. This landscape changed dramatically with the US Supreme Court’s recent watershed decision in Loper Bright Enterprises v Raimondo , 603 US 369 (2024) (“Loper Bright”). Loper Bright expressly overruled Chevron , opening the door to new regulatory chal - lenges. Taxpayers have already begun to successfully leverage Loper Bright to challenge Treasury Regula - The US Constitution exclusively assigns the fed - eral courts the function of interpreting the law. “It is emphatically the province and duty of the judicial department to say what the law is” ( Marbury v Madi- son , 5 US 137, 177 (1803)). Still, federal courts have given “the most respectful consideration” to federal agencies’ interpretation of the law because “[t]he officers concerned are usually able men, and mas - ters of the subject” ( United States v Moore , 95 US 760, 763 (1878)). tions under Section 482. Chevron and Loper Bright
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