The High Court has upheld Revenue's legal challenge to a Tax Appeals Commission determination concerning foreign withholding tax paid on royalty income earned by Avaya International Sales Limited.
Ms Justice Marguerite Bolger ruled on July 3 that the Tax Appeals Commissioner had fallen into errors of law on each of the questions referred to the court. The case concerns foreign royalty withholding tax deducted from payments made by overseas customers licensing Avaya's technology.
Avaya is an Irish-registered and tax-resident company providing communications solutions internationally. During the relevant accounting periods, overseas customers in several jurisdictions withheld tax from royalty payments. Avaya had no branch or permanent establishment in those territories.
The Tax Appeals Commissioner decided in December 2023 that, apart from tax arising in Argentina, Avaya could deduct the foreign withholding tax as a trading expense under section 81 of the Taxes Consolidation Act 1997.
Revenue appealed that decision by way of a case stated, which asks the High Court to determine identified questions of law rather than rehear the tax case from the beginning.
The High Court held that the statutory double-taxation regime in Schedule 24 of the Act was a stand-alone system. Where relief under that regime was available but produced no usable tax credit, Avaya could not instead treat the foreign tax as an ordinary deductible trading expense under section 81.
The judge also found that foreign withholding tax charged on income already earned was an application of that income, rather than an expense incurred to earn it. She rejected comparisons with deductible charges such as rates, stamp duty, employer PRSI or credit-card processing costs.
Separately, the court found that Avaya had not produced sufficient evidence about how withholding taxes operated in the individual foreign jurisdictions to support several factual conclusions reached by the Commissioner.
The judgment establishes the legal errors but does not contain the final consequential order. The case was listed again for July 7, 2026 for those orders to be made.