Irish staff data ruling ‘may open door' to more US tax probes, experts warn

Irish Independent

22-06-2025

Last month, an American judge told Dublin-headquartered Eaton, a power systems multinational, to ignore GDPR rules and hand over controversial employee-performance evaluations to the IRS following a long-running legal dispute. The IRS hopes to use the evaluations to judge how much work Irish-based staff were doing on some of its intellectual property (IP), potentially showing whether Eaton was being taxed correctly or not.
Reacting to the judgment, Brendan Murphy, tax lead and partner at Baker Tilly Ireland, said some multinationals will worry that the ruling could 'open the door' for more IRS investigations into the work of Irish staff.
'Where does it stop then if the US takes that aggressive route? When does the EU step in to try and support companies by saying that we don't agree with this aggressive approach by the US, that these companies do have their transfer pricing work done and these profits do deserve to remain in that country.
'You could end up in a tax authority versus tax authority argument.'
Murphy warned that US tax authorities could focus on companies that moved IP to Ireland between 2014 and 2020. He added the judgment appeared to weaken the protections provided by GDPR.
'I'm surprised that the US court was allowed to be so flippant in overruling it [GDPR] and say that they hold authority, as such. It'll be interesting to see if the EU courts have something else to hit back with on it.'
With the judgment now calling on Eaton to hand over the employee- performance files, Murphy is hopeful they will bolster the argument that its Irish staff were properly supporting the IP functions and that no transfer pricing adjustment would be required.
However, if the US courts find otherwise, it could lead to more US 'attacks' on transfer pricing studies.
In that case, Murphy said it would be important for Ireland to defend itself.
Jo Joyce, a partner at Taylor Wessing Ireland and lead on technology, IP and information, said the US judgment could create an expectation that the IRS's demands outweigh 'legitimate EU privacy concerns'.
'This case is quite specific on its facts but could be used as a wedge to open the door for broader claims and requests, giving less weight to GDPR than has historically been the case,' she said.
'US courts are aware of the controversy around sharing data with the US and have not historically been keen to disregard European privacy law in such a frustrated way as this judge seems to have done.
'There is a risk of a precedent being set and this being the first chink in the armour that leads to further and broader requests.'
The case stems from an IRS audit of Eaton's 2017-2019 tax returns, which focused on whether the company improperly shifted IP to Ireland, where corporate tax rates are lower.