A recent federal appeals court ruling giving the IRS access to data in a transfer pricing dispute has the potential to put multinational companies on a collision course with stringent European Union privacy laws.
The US Court of Appeals for the Sixth Circuit determined the IRS can issue summonses to Eaton Corp. for employee performance reviews from its Irish affiliate as part of a government audit to determine whether the power management company's transfer of intellectual property was a tax evasion move.
Eaton strenuously opposed the requests, arguing that turning over the data would violate the EU's General Data Protection Regulation, which scrutinizes such disclosures—even if made under court order.
How EU authorities respond to Eaton's disclosure could set up other major corporations to be caught between differing international regulations and political objectives, practitioners tell Bloomberg Law.
Eaton's not out of line in fearing the implications of being out of GDPR compliance, said Odia Kagan, who chairs Fox Rothschild LLP's data compliance and international privacy practice.
The GDPR and other EU privacy laws have hardened in recent years following leaks by Edward Snowden, whose disclosures about US surveillance programs increased other countries' paranoia about safeguarding their own data, she said.
Other major data breaches, such as Booz Allen Hamilton Inc. and IRS contractor Charles Littlejohn's leaks of taxpayer information to the media, also cast doubt the US has adequate capability to protect sensitive data, Kagan said.
Under the GDPR's broad terminology, employee reviews are considered personal information that can't be shared, although the IRS argued that the agency needed the information to understand what level of control Eaton's Irish workers had over the transferred IP.
The IRS's victory in the discovery dispute will cause the agency to pursue similar transfer pricing cases against other major international companies, which could face similar privacy conundrums, said Justen Ghwee, director of international tax for Kaufman, Rossin & Co.
The tax benefits of transferring IP or company headquarters abroad are starting to be offset by negative consequences, and those same companies are now caught in the middle of US tax policy and EU privacy regulations, he said.
"Some of these companies have come to regret transferring their HQ overseas."
Awaiting EU Action
The GDPR takes a prohibitionist stance on sharing personal data, including work-related information, outside of the EU.
Article 48 considers the US a "third country" whose data protections aren't necessarily "adequate" even with the data privacy framework established between the political entities.
"Transfers to other countries are treated with skepticism and that doesn't necessarily go away even with a court order," Kagan said.
As a result, the GDPR often provides a basis for companies to object to information disclosure, and its rigorous standards on the necessity of sharing information are a means to pare down what companies actually disclose. The GDPR generally has more stringent privacy requirements than US laws, which could mean EU regulators will seek justification for the disclosure to the IRS of each unredacted data point on a performance review.
For these reasons, a number of business groups backed Eaton's concerns about the GDPR and its privacy implications in amicus briefs filed with the Sixth Circuit.
The IRS's request for employee reviews isn't unreasonable if the agency is looking for a contemporaneous understanding of what those employees did and what control they exercised in order to determine the legitimacy of the IP transfer, Ghwee said.
On the other hand, the agency often makes broad requests for company information in transfer pricing disputes that US courts tend to narrow, so it makes sense for Eaton to attempt to curtail what the agency can obtain, he said.
Michael DeSimone, international tax director at CrossBorder Solutions LLC, said it's unlikely that performance reviews will have much detail about IP, so EU regulators could deem these disclosures as crossing the line and penalize Eaton.
But it's too early to tell how the EU will respond if an Irish worker complains, he said.
The company has recourse through a Mutual Agreement Procedure proceeding if the EU determines the disclosure runs afoul of the GDPR, DeSimone said, although he wasn't aware of any similar cases involving required disclosures of employee information.
Focus on Ireland
Ireland in particular is likely to be the locus of many cross-border privacy issues, as several companies flocked there in recent years to take advantage of its friendlier tax rate and corporate climate.
Eaton itself was, for most of its history, based in Ohio but became domiciled in Ireland after a 2012 corporate inversion shifted its headquarters to that nation, thus making it subject to less stringenttax laws.
Many other large corporations did the same, also moving their IP offshore to Ireland and other nations with more favorable tax schemes.
As a result, Ireland's Data Protection Commission is now facing several GDPR privacy disputes involving those companies and their responses to US government information requests, said Austin Chambers, a partner focused on data privacy at Dorsey & Whitney LLP.
The recent Tax Court ruling against Facebook in its own Irish transfer pricing dispute provides an example of the potential implications for those businesses, he said. The IRS in that case also aggressively sought information from the company to understand how to value its IP, a move the US courts backed.
With neither the US nor EU backing down, companies should act defensively, he said.
Ireland doesn't want to be "seen as antagonistic to business" or to "turn off the money faucet," Chambers said. "But privacy has become a wedge issue. It pops up in weird ways and becomes a sensitive topic because there are a lot of competing political priorities around it."
The case is United States v. Eaton Corp. , 2025 BL 280566, 6th Cir., No. 24-3732, 8/8/25 .
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