KPMG article: Does transfer pricing have a Loper Bright problem?
How the Supreme Court’s decision in Loper Bright may affect the application of section 482
Transfer pricing practitioners spend so much time immersed in Treasury regulations that they can be forgiven for overlooking just how strange the underlying statute is. Consider that the first and original sentence of section 482 does not mention the arm’s length standard. It does not mention transfer pricing; it does not mention pricing at all, or intercompany transactions. It does not mention the hundreds of pages of regulations that transform it from a broad anti-abuse power into a set of (mostly) coherent rules by which taxpayers arrange, and tax examiners police, intercompany relationships.
It says, in essence, that if two or more parties are subject to common control, the IRS “may distribute, apportion, or allocate gross income, deductions, credits, or allowances” if “necessary in order to prevent evasion of taxes or clearly to reflect the income of any of” those parties. To be sure, the statute has been amended, although only in a piecemeal fashion. The Tax Reform Act of 1986 added a second sentence, and the Tax Cuts and Jobs Act of 2017 added a third, but both by their terms are restricted to transactions involving intangibles. This article focuses solely on the first sentence of section 482—the basis for the entire U.S. transfer pricing system.
Tax certainty is an important goal. For all the work that goes into designing and improving tools to prevent and resolve disputes, the foremost source of certainty in tax matters is clear rules. We proceed from the assumption that, despite occasional governmental overreach, having reliable transfer pricing regulations is a good thing for just about everyone. Loper Bright has eliminated Chevron deference—which, despite a proliferation of exceptions and preliminaries, embraced a relatively simple two-step framework—with a new framework that remains to be fully fleshed out. At least for a while, we will be living in a less certain world. The crucial question is, once the dust settles, does section 482 have a Loper Bright problem?
Read a March 2025 report* prepared by KPMG LLP tax professionals that considers how the Supreme Court’s decision in Loper Bright may affect the application of section 482.
* This article originally appeared in Tax Notes Federal (March 31, 2025) and is provided with permission.