USA Trends and Developments Contributed by: Kim Marie Boylan, Kevin Spencer, Nicholas Wilkins and Sean Lyons, White & Case LLP
Impact of Recent Decline in Deference to Federal Agency Regulations on US Transfer Pricing Regime Given that the majority of US transfer pricing guidance takes the form of Treasury Regula - tions, recent case law reducing the level of def - erence afforded to federal agency pronounce - ments could have far-reaching implications for the future of the US transfer pricing regime. This article examines the new, less deferential pos - ture recently adopted by the US Supreme Court in the context of pending transfer pricing cases and considers the impact on the transfer pricing regime more generally. In the USA, the transfer pricing rules are gov - erned by Section 482 of the Internal Revenue Code (the “Code” ). Section 482 of the Code grants the US Internal Revenue Service (IRS) broad discretion to allocate income, deductions, credits, and allowances among related persons “to prevent the evasion of taxes or clearly to reflect the income” of such persons. Section 482 of the Code also mandates that the income with regard to the transfer or licence of an intangible be commensurate with the income attributable to that intangible and provides high-level stand - ards for valuing such transfers. Despite its central importance to the US transfer pricing regime, Section 482 of the Code is only three sentences long and provides no technical guidance, including on key questions such as comparability, selection of transfer pricing meth - ods, and similar fundamental topics. Instead, the substantive transfer pricing rules are explained in the Treasury Regulations promulgated under Section 482 of the Code. Although the current Section 482 regulations were introduced in the early 1990s, the US Department of the Treasury (the “Treasury” ) has issued regulations imple - menting Section 482 and its predecessors that
date back to the 1930s. The Treasury has also amended and added to the current regulations throughout the past 30 years. The regulations presently in effect are extensive, spanning hun - dreds of pages, and providing detailed rules to comply with Section 482 of the Code. Understanding and defining the position of agency regulations in the hierarchy of law has been a persistent issue in the USA, spawning thousands of court decisions and countless academic articles. However, until very recent - ly, the Section 482 regulations have enjoyed the substantial deference afforded to federal 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 regula - tions 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 challenges. Taxpayers have already begun to leverage Loper Bright to chal - lenge Treasury Regulations outside of Section 482 of the Code (with mixed success) and there are currently two challenges to a provision of the Section 482 regulations pending before different Under the US Constitution, the federal courts exclusively are assigned the function of inter - preting the law. “It is emphatically the province and duty of the judicial department to say what the law is” (Marbury v Madison, 5 US 137, 177 (1803)). Even still, federal courts have long afforded federal agencies’ interpretations of the law some level of deference. The courts have US federal appellate courts. Chevron and Loper Bright
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