Taxation & Privacy

How the IRS Beat EU Privacy in the Eaton Corp Audit

The strength of national authority over international privacy standards

Kemal M. Lepschoque, LL.M.
Friendly Legal
Published in
6 min readJun 4, 2024

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Very recently in United States v. Eaton Corp. (2024), the Internal Revenue Service (IRS) was conducting an audit on how Eaton Corporation handled its pricing issues with its Irish affiliate. This called “transfer pricing”, which involves setting prices for transactions between related companies in different countries (for instance, between the U.S. and Ireland). The IRS wanted to see performance evaluations of certain employees from Eaton’s Irish affiliate to understand these pricing decisions better.

However, Eaton Corporation refused to provide these evaluations, arguing that they were not relevant to the audit and that EU privacy laws protected the information. In response, the IRS issued an administrative summons (a formal demand for the documents).

Eaton challenged the summons in court, and initially, a magistrate judge agreed with Eaton. The magistrate found the performance evaluations both irrelevant to the IRS audit and protected by European privacy regulations.

Of course, the IRS appealed this decision to a district court judge. The district court judge overruled the magistrate judge’s recommendation. The district court judge decided that the IRS’s investigative powers were broad enough to include the performance evaluations, thus enforcing the summons and requiring…

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Kemal M. Lepschoque, LL.M.
Friendly Legal

Lawyer | Traveller | Polyglot | 27 x Boosted ✨ adept at simplifying complex juridical concepts into human-friendly language & 60+ countries visited