Uncertainty in transfer pricing post Loper Bright

Janie Whiteaker-Poe is an assistant professor of accounting at Drury University in Springfield. After graduating from the Washington University School of Law, she worked in Washington D.C. auditing federal executive agencies. She received her Ph.D. from the University of Kansas in 2013.

Loper Bright Enterprises v. Raimondo¹ is a significant legal case in the context of administrative law and tax regulations. In its 2024 decision, the U.S. Supreme Court addressed the extent of judicial deference courts should give to federal agencies’ interpretation of statutes. The Court specifically granted certiorari in this case to revisit whether the standard established in Chevron U.S.A. v. Natural Resources Defense Council, Inc.² (known as Chevron deference) should be overruled.³ The Court held in Loper Bright that “courts may not defer to an agency interpretation of the law simply because a statute is ambiguous,” overturning Chevron.⁴ 

This decision marks a fundamental shift in administrative law. By rejecting Chevron, the Court returned interpretive authority to the judiciary and unsettled decades of predictable reliance on agency expertise. The implications are particularly significant in tax law, where practitioners depend on detailed IRS regulations. However, the decision will also have a ripple effect across every regulatory field where agencies have long been responsible for interpreting statutory meaning. This article examines how Loper Bright reshapes interpretive landscape, with special attention to transfer pricing, and considers the broader effects on administrative law practice.

Background 

Chevron deference 

At issue in Chevron were regulations promulgated by the U.S. Environmental Protection Agency in support of the Clean Air Act Amendments of 1977.⁵ Congress did not define key statutory terms, such as “stationary source” in the CAA. The EPA issued regulations allowing states to adopt a plantwide definition of “stationary source,” meaning companies could modify facilities without new permits as long as total emissions did not increase.⁶ Environmental groups challenged the rule, arguing that the regulations were in contradiction to the CAA’s goal of improving air quality rather than maintaining existing air quality. 

In its 1984 ruling, the U.S. Supreme Court upheld the EPA’s interpretation of the term “stationary source,” establishing the two-step Chevron framework: (1) determine whether Congress’ intent is clear; and (2) if ambiguous, defer to the agency’s reasonable interpretation. This reasoning effectively positioned agencies as the primary interpreters of complex statutes whenever ambiguity existed, so long as their construction was not “arbitrary, capricious, or manifestly contrary to the statute.”⁷ 

Chevron’s reach was extensive, shaping areas from environmental law and telecommunications regulation to taxation, health care, and immigration. For instance, in Mayo Foundation for Medical Education and Research v. U.S., the U.S. Supreme Court upheld the IRS’ classification of medical residents as ineligible for a student payroll tax exemption under Chevron.⁸ Similarly, in National Cable & Telecommunications Association v. Brand X Internet Services, the Court deferred to the Federal Communications Commission’s interpretation of broadband services.⁹ Through such cases, Chevron fostered predictability: agencies — not courts — crafted the interpretive rules lawyers and regulated entities relied on. However, that predictability came under strain as the Court began to narrow Chevron’s scope through doctrines emphasizing judicial oversight. In Michigan v. E.P.A., the Court limited Chevron deference by finding the EPA’s regulation of mercury emissions under the CAA unreasonable because it failed to account for costs.¹⁰ In King v. Burwell, the Court introduced the major questions doctrine, declining to apply Chevron to cases with issues of major economic and political significance.¹¹ Other cases, such as U.S. v. Mead Corp.¹² and Food and Drug Administration v. Brown & Williamson Tobacco Corp.,¹³ reaffirmed that Chevron applies only when Congress clearly delegates interpretive authority. These limitations signaled the Court’s growing discomfort with broad agency discretion, which ultimately culminated in Loper Bright’s rejection and overturning of Chevron deference.

Loper Bright 

In 2020, Loper Bright Enterprises, a fishing company, challenged a National Marine Fisheries Service regulation that required certain fishing vessels to pay for monitors to ensure compliance with federal regulations. The company argued that the regulation was not explicitly authorized by statute and thus was an overreach of the agency’s authority. Specifically, the petitioners argued the requirement to pay for monitors was not authorized by the Magnuson-Stevens Fishery Conservation and Management Act¹⁴ and the NMFS regulation imposed undue financial burdens. Loper Bright Enterprises also challenged the validity of Chevron deference, arguing that it gave too much power to administrative agencies. 

In its ruling, the U.S. Supreme Court overturned Chevron, holding that “Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the APA requires.”¹⁵ The Court reasoned that the Chevron doctrine was in direct contradiction with the Administrative Procedures Act, which requires courts to interpret statutory provisions and decide questions of law independently. Chevron, however, presumed ambiguity meant that Congress intended agencies to resolve statutory gaps, effectively displacing the judiciary’s role. Loper Bright reasserted that statutory ambiguity does not signal congressional intent to delegate interpretive power. Instead, Loper Bright revives a model of judicial independence grounded in constitutional separation of powers: agencies may enforce, but courts interpret. 

This restored judicial primacy has far-reaching effects. Without the stabilizing framework of Chevron, practitioners across every regulated field could face a more uncertain interpretive environment where the courts, rather than agencies, supply meaning case by case. Nowhere is this uncertainty more immediate than in tax law. 

Implications for tax regulations 

Tax law provides a powerful example of how Loper Bright disrupts long-established reliance on agency interpretation. Under Chevron, if a tax statute was ambiguous, courts deferred to the IRS for reasonable interpretation. Under Loper Bright, courts may no longer automatically defer to the IRS. Instead, courts must independently interpret tax statutes, potentially leading to different conclusions than the IRS determines. 

This shift carries important structural consequences: The IRS, like all administrative agencies, loses much of its interpretive authority, while courts gain discretion to decide tax issues on their own. The result is an interpretive environment less anchored by agency consistency and more susceptible to judicial variation. For tax practitioners, especially those working in complex areas such as transfer pricing, this change creates both opportunity and risk. Taxpayers have an opportunity to challenge IRS positions once insulated by Chevron, but risk unpredictable judicial outcomes. Similar patterns will soon appear in other regulatory areas. Environmental litigants may test EPA rules, health care providers may contest Centers for Medicare & Medicaid Services guidance, and financial institutions may challenge interpretations by the U.S. Securities and Exchange Commission or Consumer Financial Protection Bureau. 

Loper Bright thus sets the stage for relitigation across the administrative state, with tax law merely the first and perhaps most technical proving ground. Specifically, areas of IRS regulation likely to be affected include complex provisions governing credits and deductions, transfer pricing rules under § 482, and enforcement-related penalty determinations. Where practitioners once could rely on treasury regulations as definitive, courts must now make their own statutory determinations, creating room for conflicting interpretations among circuits. 

Transfer pricing 

Transfer pricing exemplifies how the Loper Bright Court’s rejection of agency deference unsettles long-established expectations. When large companies with related subsidiaries trade goods or services among themselves, they choose the prices for these transactions. These “transfer prices” determine how income and deductions are allocated among jurisdictions. Because such pricing directly affects tax liabilities, taxing authorities generally require that intracompany transactions occur at “arm’s lengths” prices that are consistent with what unrelated parties would pay in a comparable market. 

In practice, however, establishing an arm’s-length price is difficult, especially for intangible assets like intellectual property.¹⁶ To combat the manipulation of transfer pricing, § 482 of the Internal Revenue Code allows the IRS to reallocate “gross income, deductions, credits or allowances” between related parties when “necessary in order to prevent evasion of taxes or to clearly reflect the income” of the parties.¹⁷ This vital section of the IRC is one paragraph and explicitly gives the secretary of the U.S. Department of the Treasury the authority to reallocate income. Due to the brevity of the IRC and the complexity of transfer pricing, the IRS has issued several regulations related to IRC § 482. The treasury regulations outline acceptable methods for determining transfer prices based on the good or service being transferred.¹⁸ 

Under Chevron, these treasury regulations carried the weight of reasonableness — as long as they were not arbitrary or capricious, courts deferred to them. After Loper Bright, that presumption is gone. Courts must now evaluate whether each regulation truly aligns with the statutory text, regardless of the IRS’ expertise of long-standing practice. Large corporations may feel emboldened to advance their own interpretations of § 482, arguing that the treasury’s methodologies lack statutory grounding. This invites renewed litigation over which pricing models most faithfully reflect congressional intent. 

Recent high-profile cases illustrate how dependent transfer pricing jurisprudence has been on agency regulations. In The Coca-Cola Company & Subsidiaries v. Commissioner of Internal Revenue, the IRS challenged the company’s method for allocating profits between its U.S. parent and foreign subsidiaries.¹⁹ The Tax Court rejected Coca-Cola’s profit split methodology, instead upholding the IRS’ use of the Comparable Profits Method as outlined in Treasury Regulation 1.482-5 as a reliable method for determining arm’s-length profits and resulting in a $3.3 billion tax adjustment for Coca-Cola. 

Similar reliance on treasury methods appeared in Amazon.Com, Inc. v. Commissioner of Internal Revenue²⁰ and Medtronic, Inc. & Consolidated Subsidiaries v. Commissioner of Internal Revenue,²¹ where courts compared competing models from the IRS and taxpayers but still treated the treasury’s methodologies as the interpretative baseline. After Loper Bright, courts may no longer assume those regulations deserve deference. Instead, each method’s statutory validity will be open to challenge, potentially yielding divergent rulings among jurisdictions. 

Earlier cases like Mayo Foundation for Medical Education and Research v. U.S.²² and Altera Corp. v. Commissioner of Internal Revenue²³ reinforced the treasury’s authority under Chevron, sustaining regulations as “reasonable interpretations.” Without the doctrinal shield, the same rules may now be reexamined through the lens of textual fidelity rather than administrative expertise. The pattern evident in transfer pricing mirrors challenges likely to surface elsewhere: How far can agencies interpret technical statutes without explicit congressional instruction? Whether applied to IRS rules, EPA emissions standards, or FDA labeling requirements, Loper Bright invites courts to reconsider decades of deference-driven precedent.

Conclusion 

The Court’s decision in Loper Bright significantly changed how courts interpret tax regulations. By overturning the 40-year-old Chevron deference doctrine, the Court has transferred interpretive authority from federal agencies to the judiciary, creating uncertainties in tax law. This shift empowers courts to substitute their own interpretations for those of the IRS. For transfer pricing, the change may mean greater judicial scrutiny of long-standing methodologies, leading to inconsistent outcomes and increased litigation. 

Yet implications from Loper Bright reach well beyond tax law. Every practitioner who interacts with federal agencies — from environmental law to health care reimbursement to securities regulations — must now confront a redefined relationship between the courts and the administrative state. The unifying principle is that ambiguity no longer triggers automatic agency control. Instead, it invites judicial interpretation, potentially different in each jurisdiction and evolving with the courts’ composition and philosophy. In practical terms, this realignment could spur both innovation and instability. Regulated entities may seize opportunities to challenge entrenched rules, while agencies face pressure to justify their guidance with more explicit statutory grounding. 

Courts, for their part, will bear the burden of ensuring interpretive consistency without the institutional expertise agencies once supplied. To restore stability, Congress or the U.S. Department of the Treasury might respond by drafting more detailed statutes, amending the APA to define interpretive authority more explicitly, or issuing updated guidance that can withstand judicial scrutiny. Such legislative or regulatory responses could mitigate the uncertainty of the post Loper Bright era and provide taxpayers and practitioners with much-needed predictability. 

Ultimately, Loper Bright recalibrates the balance of power across the administrative state. Whether in tax, environmental, or health care law, practitioners now navigate a landscape defined by judicial, rather than bureaucratic, interpretation. The challenge for both lawmakers and lawyers will be to balance the constitutional virtues of judicial independence with the practical need for coherent, predictable governance. In this new era, uncertainty becomes both a risk and a catalyst, forcing the legal system to reconsider who speaks with final authority when the law itself falls silent.

Endnotes
1 603 U.S. 369 (2024).
2 467 U.S. 837, 844 (1984).
3 603 U.S. 369 (2024).
4 Id. at 369.
5 Clean Air Act Amendments of 1977, Pub. L. No. 95-95, 91 Stat. 685 (1977). 
6 46 FED. REG. 50,766 (Oct. 14, 1981).
7 Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 844 (1984).
8 Mayo Found. for Med. Educ. & Research v. United States, 562 U.S. 44 (2011).
9 Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967 (2005). 
10 Michigan v. E.P.A., 576 U.S. 743 (2015).
11 King v. Burwell, 576 U.S. 473 (2015).
12 United States v. Mead Corp., 533 U.S. 218 (2001).
13 FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000).
14 Magnuson-Stevens Fishery Conservation and Management Act, 16 U.S.C. §§ 1801–1891d (2023).
15 Loper Bright Enters. v. Raimondo, 603 U.S. 369, 412 (2024).
16 Dhammika Dharmapala, What Problems and Opportunities Are Created by Tax Havens?, 24 OXFORD REV. ECON. POL’Y 661 (2008).
17 I.R.C. § 482 (2023).
18 TREAS. REG. §§ 1.482-3, 1.482-4, 1.482-7, 1.482-9T (2023).
19 Coca-Cola Co. v. Comm’r, 155 T.C. 145 (2020).
20 Amazon.com, Inc. & Subsidiaries v. Commissioner, 148 T.C. 108 (2017), aff’d, 934 F.3d 976 (9th Cir. 2019). 
21 Medtronic, Inc. & Consolidated Subsidiaries v. Commissioner, 900 F.3d 610 (8th Cir. 2018). 
22 Mayo Found. for Med. Educ. & Research v. United States, 562 U.S. 44 (2011). 
23 Altera Corp. v. Comm’r, 145 T.C. 91 (2015), aff’d, 926 F.3d 1061 (9th Cir. 2019).