Schedule 24 as an Exclusive Double-Taxation Code: Foreign Royalty Withholding Tax Cannot Be Deducted Under s.81 TCA 1997 Where Treaty/Unilateral Relief Yields No Credit

1. Introduction

The Revenue Commissioners v Avaya International Sales Ltd [2026] IEHC 448 is a case stated appeal under s.949AQ Taxes Consolidation Act 1997 (as amended) (“TCA 1997”) from a determination of the Tax Appeal Commissioners (“TAC”). The dispute concerned whether foreign royalty withholding tax (“FWHT” / “RWHT”) suffered on royalties earned abroad could be deducted in computing Irish trading income under s.81 TCA 1997, particularly where the taxpayer was not in a corporation tax paying position and therefore could not practically utilise double taxation relief.

The taxpayer (an Irish-resident company licensing technology to overseas licensees) received foreign-source royalties. In various jurisdictions, licensees withheld RWHT under local law and paid only the net amount to the taxpayer. The taxpayer had no branch or permanent establishment in those jurisdictions. The key question was whether RWHT could be treated as a deductible trading expense under s.81, or whether the exclusive statutory route for relief was the double taxation code (ss.826/826A and Schedule 24 TCA 1997), even if that route produced no effective relief due to the taxpayer’s loss-making or credit-sheltering position.

2. Summary of the Judgment

Ms Justice Marguerite Bolger held that each of the points of law stated to the High Court identified errors of law in the TAC’s determination. The Court adopted and applied its earlier reasoning in Accenture Global Solutions Limited v The Revenue Commissioners [2026] IEHC 305.

In substance, the Court concluded that:

  • The statutory double taxation regime in ss.826/826A and Schedule 24 is a stand-alone and exclusive code for relieving foreign tax on the same income; s.81 cannot be used as an alternative route to “relief” where Schedule 24 yields nil.
  • RWHT characterised as a tax on income is not an expense “wholly and exclusively” laid out for the purposes of the trade; it is an application of income after it is earned.
  • The TAC erred in relying on comparisons with other deductible taxes/charges (rates, stamp duty, irrecoverable VAT, employer PRSI) and in making unsupported observations about digital services tax (“DST”) as a “tax on income” relevant to s.81 deductibility.
  • On the evidence, the TAC lacked a proper evidential basis to make certain findings/inferences (including that RWHT was imposed on gross royalties in all relevant jurisdictions other than Argentina, and that suffering RWHT was unavoidable and “part and parcel” of the taxpayer’s business activity).

3. Analysis

3.1 Precedents Cited

(a) The Court’s own recent precedent: Accenture Global Solutions Limited v The Revenue Commissioners [2026] IEHC 305

This judgment is best understood as a direct extension of Accenture. The High Court treated Accenture as effectively determinative of: (i) the exclusivity of the Schedule 24 double taxation machinery, and (ii) the non-deductibility under s.81 of a foreign withholding tax properly analysed as a tax on income.

While the factual sequencing differed (in Accenture there was no Schedule 24 claim at all; here there had been a limited Schedule 24 claim followed by a s.81 claim), the Court considered that difference to strengthen, not weaken, the conclusion that Schedule 24 is not optional and cannot be side-stepped by recharacterising the foreign tax as a trading deduction.

(b) Case stated jurisdiction and appellate restraint

  • Stanberry Investments v Commissioner for Valuation [2020] IECA 33: cited for the proposition that specialist tribunals receive curial deference on fact, but not a “supercharged presumption of validity”, and not on law.
  • O'Cúlacháin v. McMullan Brothers Ltd [1995] 2 I.R. 217 and Mara (Inspector of Taxes) v. Hummingbird [1993] ILRM 421: cited for the standard governing interference with primary facts and inferences (no evidence / unreasonable inference / wrong view of law).
  • Hade v Revenue Commissioners [2025] IEHC 385: relied upon to confirm that no deference is owed to TAC on questions of law.
  • Westlink Toll Bridge Ltd v Commissioner of Valuation [2013] IESC 42, Lough Swilly Shellfish Growers Co- Operative Society Ltd & Anor v Bradley & Anor [2013] IESC 16, and Murphy v The Revenue Commissioners [2023] IECA 160: used to police whether an argument is a “new matter” that does not “arise on the case”.
  • Arlum Ltd v The Revenue Commissioners [2024] IEHC 402: cited as an example where Revenue was not permitted to raise a point not addressed below, illustrating the boundary of the case stated process.
  • Hanrahan v Revenue Commissioners [2024] IECA 113: relied on to emphasise that where the facts are fixed by the case stated, the remaining question is objective legal interpretation; the High Court cannot be bound by the tribunal’s legal view.
  • Revenue Commissioners v Getty Images International ULC [2025] IEHC 268: referenced on the procedural possibility of amending questions in a case stated, though the Court made clear no criticism arose from not making such an application here.

(c) Deductibility principles and “profits vs application of profits”

The Court adopted the Accenture analysis of classic authorities governing when an outgoing is incurred “for the purpose of earning” profits versus being an application/distribution of profits (or income) once earned:

  • Strong v. Woodifield [1906] AC 448
  • Smith 's Potatoes Estate Ltd v. Boland (Inspector of Taxes) (1947) 30 T.C. 267
  • Harrods (Buenos Aires) Ltd v Taylor- Goodby (HM Inspector of Taxes) [1963] 41 T.C 450
  • Hong Kong Inland Revenue Board (Decision Case No. D43/91)
  • Ashton Gas Company v AG [1906] AC 10
  • Inland Revenue Commissioners v. Dowdall O'Mahoney and Co Ltd [1952] A 401
  • Yates (Inspector of Taxes) v GCA International Ltd [1991] STC 157
  • Mersey Docks and Harbour Board v. Lucas [1883] 8 App. Gs. 891: the Court (via Accenture) used Lord Selbourne’s formulation contrasting expenses “incurred in order to earn gain” with “application or distribution of that gain when earned”.

3.2 Legal Reasoning

(a) The central holding: Schedule 24 excludes a s.81 “workaround”

The decisive reasoning is statutory. Section 81 operates “subject to the Tax Acts”, and the TCA 1997 contains a dedicated regime for foreign tax relief: ss.826/826A and Schedule 24 (and related provisions such as s.77(6B)). Following Accenture, the Court held that this is “the entirety of the statutory regime” for relieving double taxation and it is not open to a taxpayer to:

  • run Schedule 24, obtain nil credit (because Irish tax is already reduced to zero by credits/charges), and then
  • recast the foreign tax as a trading deduction under s.81 to generate or increase losses/reliefs in Ireland.

On this approach, “no usable credit” is not the same as “no entitlement to the credit regime”; rather, the taxpayer is within the regime but the computation yields zero. The legislative intent is to relieve Irish tax on the same income (up to limits), not to compensate the taxpayer for having suffered foreign tax where there is no Irish tax to relieve.

(b) RWHT as a tax on income is not “wholly and exclusively” incurred to earn profits

Even aside from exclusivity, the Court accepted the Accenture analysis that where RWHT is properly characterised as a tax on income (and imposed after income is earned), it is not an expenditure laid out to earn the income; it is an application of income. The Court rejected the view that the mere fact RWHT is calculated on gross royalties (rather than profits) makes it “incurred in earning” profits. The legal test requires asking whether the outgoing is part of the cost of earning the income, not whether it is measured by reference to receipts.

The Court also rejected analogies to payment processing charges (e.g., credit card merchant fees), which are seen as transactional costs incurred to secure payments, unlike a tax charge imposed on the income once earned.

(c) Misleading comparators: deductible “taxes/charges” and DST

The TAC’s reliance on the existence of other deductible compulsory outgoings (rates, stamp duty, irrecoverable VAT, local authority charges, employer PRSI) was treated as legally flawed because it blurred a crucial distinction:

  • some compulsory charges are incurred in the process of operating the business and before profits/income are realised; but
  • a tax on income is charged on what has already been earned.

The Court further held that the TAC erred in using “digital services tax” as support for a general proposition that “a tax on income” may be deductible under s.81. The High Court criticised that observation as unsupported by evidence and, in any event, Revenue guidance could not supply the evidential foundation or alter statutory meaning.

(d) Evidential shortcomings and unreasonable inferences

The Court scrutinised whether the TAC had a sufficient evidential basis for key factual findings underpinning its legal conclusions. The taxpayer’s witness evidence was largely framed as an “understanding” of how withholding operated and did not demonstrate familiarity with the legal or practical detail of the foreign regimes. The High Court emphasised that the burden before TAC lay on the taxpayer and was not discharged by generalised evidence.

The Court also rejected the TAC’s inference that RWHT was unavoidable or integral to trading in the jurisdictions, noting that an alternative commercial structure (operating through a branch or permanent establishment) could have resulted in ordinary local taxation rather than withholding on outbound royalties. While the taxpayer was free to structure its affairs, that freedom did not transform the nature of RWHT into a s.81 trading expense.

3.3 Impact

  • Strengthening exclusivity of the double taxation code: Together with Accenture, this decision consolidates a clear High Court position: Schedule 24 is not merely one relief among others; it is the exclusive statutory channel for addressing foreign withholding on the relevant income.
  • Loss-making (or credit-sheltered) taxpayers cannot “monetise” foreign withholding via s.81: The practical significance is greatest where Irish corporation tax is nil. Such taxpayers may suffer foreign withholding as an absolute cost if Schedule 24 yields no credit; the courts will not permit conversion of that cost into Irish deductions under s.81.
  • Narrowing s.81 arguments based on “compulsion” and “gross basis”: The judgment signals that arguments focusing on the involuntary nature of withholding or the fact that it is calculated on gross royalties will not, without more, satisfy the “wholly and exclusively” test where the charge is properly analysed as a tax on income.
  • Evidence expectations before TAC: Taxpayers seeking to characterise foreign charges (including withholding) as deductible expenses must be prepared to prove how the foreign regime operates and why the charge is not, in substance, a tax on income/profits. Generalised accounting treatment evidence may be insufficient.

4. Complex Concepts Simplified

  • Case stated appeal: A mechanism where TAC states the facts and questions of law to the High Court. The High Court answers the legal questions; it does not re-hear the case as a full appeal. Findings of fact are interfered with only in limited circumstances (no evidence, unreasonable inference, or legal error).
  • s.81 TCA 1997 (“wholly and exclusively”): A general rule allowing deduction of expenses incurred wholly and exclusively for the purposes of the trade. It is not a general fairness provision; it operates within (“subject to”) the rest of the Tax Acts.
  • Double taxation relief (ss.826/826A and Schedule 24): A specific statutory scheme to prevent the same income being taxed twice by giving credit against Irish tax for foreign tax on that income, subject to statutory limits. If there is no Irish tax to offset, the credit can compute to zero.
  • “Expense of earning income” vs “application of income”: Many cases distinguish costs incurred to generate income (deductible) from amounts paid out of income once earned (typically not deductible), such as taxes on income.

5. Conclusion

The Revenue Commissioners v Avaya International Sales Ltd [2026] IEHC 448 confirms, in line with Accenture Global Solutions Limited v The Revenue Commissioners [2026] IEHC 305, that foreign royalty withholding tax cannot be re-routed into a s.81 deduction where the statutory double taxation regime (Schedule 24 and related provisions) is available but yields no effective relief. The decision underscores two linked propositions: (i) the TCA 1997 provides an exclusive code for double taxation relief; and (ii) a tax on income is not transformed into a trading expense merely because it is withheld at source or computed on gross receipts.