Perrigo limits the IRS’s use of the economic substance doctrine to disregard intercompany arrangements, while Loper Bright opens the door to broader challenges to Treasury regulations under IRC Section 482.
The economic substance doctrine mandates that a transaction must alter a taxpayer’s economic position in a meaningful way and possess a valid nontax business purpose to be respected for federal tax purposes. In the realm of transfer pricing, the Internal Revenue Service (IRS) traditionally governs multi-entity transactions under Internal Revenue Code (IRC) Section 482, which relies on the arm’s-length standard to reallocate income based on functions performed and risks assumed. However, the IRS has increasingly attempted to bypass the rigorous, fact-intensive regulations of Section 482. By wielding the economic substance doctrine as a primary weapon, the agency has sought to completely disregard cross-border arrangements without undergoing standard transfer pricing methodologies. Two pivotal legal benchmarks shape this evolving dynamic: Perrigo Co. v. United States1 and the Supreme Court’s Loper Bright2 ruling. Together, these developments mark a fundamental shift in how multinational structures are litigated and defended.
The limitations of the IRS’s aggressive strategy were brought to light in Perrigo Co. v. United States. In this landmark case, the IRS asserted the economic substance doctrine to attack an intercompany assignment of supply and distribution contract rights to an Israeli affiliate, seeking to reallocate nearly all the income back to the U.S. entity. The IRS argued the foreign affiliate was a “sham” lacking the structural capacity and initial capitalization to bear risk.
The district court roundly rejected the IRS’s position, establishing vital boundaries for multinationals:
Commercial Grounding: The restructuring was rooted in a legitimate global commercial strategy rather than an artificial reality engineered solely for tax avoidance.
Financial Risk Assumption: The foreign entity was adequately empowered to financially absorb genuine market risks.
The Perrigo final judgment underscores that the economic substance doctrine cannot be used by the IRS to simply override structured operations that carry valid business purposes and genuine commercial risk. The ruling clarified that delays in paperwork or initial capitalization do not inherently equal an artificial tax sham. For corporate taxpayers, Perrigo serves as a strong defense, confirming that contemporary business projections—rather than retrospective hindsight—must guide transfer pricing realities.
While Perrigo establishes boundaries on common-law doctrines, the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo fundamentally alters the statutory playing field. By dismantling Chevron3 deference, Loper Bright dictates that reviewing courts must exercise independent judgment when interpreting ambiguous tax statutes, rather than deferring to the permissible interpretations of the IRS and the Department of the Treasury.
This paradigm shift severely weakens the network of regulations under IRC Section 482. While Section 482 itself is remarkably brief, it grants broad allocation enforcement authority but leaves the complex mechanics of the arm’s-length standard to administrative rulemaking. Historically, the IRS used these extensive regulations to dictate rigid transfer pricing methods. Post-Loper Bright, taxpayers can challenge whether specific portions of these regulations—such as those governing cost-sharing arrangements or periodic adjustments—exceed the statutory text or violate economic realities. The immediate ramifications were observed in the Eighth Circuit’s decision in 3M Co. v. Commissioner4 where the court applied Loper Bright to bypass administrative deference and look strictly at the statutory limits of Section 482.
The intersection of Perrigo and Loper Bright creates a dual-layered reality for multinational corporations. On one side, the IRS faces structural hurdles when trying to substitute the economic substance doctrine for traditional Section 482 transfer pricing analyses. On the other side, Treasury regulations are far more vulnerable to judicial scrutiny if they overreach beyond explicit congressional intent.
To navigate this landscape, corporations must prioritize detailed, contemporaneous financial planning that demonstrates both the commercial utility and the legitimate risk profile of international affiliates. Rather than relying passively on regulatory safe harbors that may no longer survive independent judicial review, tax strategies must be anchored heavily in transparent, market-driven economic realities.
1 Perrigo Company v. United States, No. 1:17-cv-00737 (W.D. Mich. September 25, 2025).
2 Loper Bright Enterprises v. Raimondo, 603 U.S. ___ (2024).
3 Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984).
4 3M Company v. Commissioner of Internal Revenue (Eighth Circuit, 2025) Docket 23-3772 (October 1, 2025).
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals.
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