Eaton ordered to provide Irish staff data in US probe

A US court has told multinational power management company Eaton that it must produce foreign employee performance evaluations – including for staff in Ireland – to the US tax authorities despite its concerns over breaching European data protection rules.

The US court’s decision is the latest development in a protracted row between Eaton, the Irish-headquartered US power management giant, and the IRS, the US tax collector.

According to the court decision, the IRS is carrying out a tax audit of Eaton. The audit centres on whether Eaton violated transfer pricing rules after allegedly assigning certain intellectual property rights to its Irish affiliate.

The inquiry is investigating whether, after it transferred the IP ownership rights, Eaton improperly lowered its US tax burden by paying inflated royalties to its Irish affiliate.

According to the IRS, Eaton’s performance evaluations likely set out project milestones that foreign employees reached while working with Eaton’s intellectual property once it was transferred to an affiliate.

Eaton had asked the US court not to enforce the IRS summons. It cited reasons including that it had offered what it claimed were less intrusive alternatives to get the information needed.

Eaton has previously said the EU’s data protection rules, known as GDPR, prohibit it from producing those performance evaluations to the IRS. In a previous filing, it warned such a breach could result in a fine of up to $832m (€767m).

In February, a US judge recommended that Eaton shouldn’t have to surrender the performance evaluations. The latest court decision has rejected this recommendation.

In the court opinion, the US Judge said the IRS isn’t required to conduct its inquiry in the least intrusive way. He also said it wasn’t clear that Eaton’s proposed alternatives, like employee interviews, were actually less disruptive.

The judge said a GDPR exception applies to Eaton’s case, which permits the personal data transfer when “necessary for important reasons of public interest”. A US-Ireland tax convention satisfied this.