The High Court has upheld Revenue’s challenge to a Tax Appeals Commission ruling which allowed Accenture Global Solutions Limited to deduct foreign royalty withholding tax as a trading expense in Ireland.
Accenture, an Irish-incorporated and tax-resident company, controls intellectual property used across the Accenture group. Foreign operating companies paid royalties to Accenture for use of that intellectual property. Local tax authorities withheld tax from those royalty payments before the balance was remitted to Ireland.
During the accounting periods at issue, Accenture was loss-making for Irish corporation tax purposes. As a result, the statutory calculation for foreign-tax credit relief under Schedule 24 of the Taxes Consolidation Act 1997 produced a credit of zero.
Accenture instead claimed the foreign withholding tax as a trading expense under section 81. That treatment would have increased losses available to carry forward or surrender within the group. Revenue rejected the deductions, but the Tax Appeals Commission ruled in Accenture’s favour in June 2024.
Ms Justice Marguerite Bolger has now found that determination legally flawed.
The court held that the legislation creates a specific regime for relieving foreign taxation through sections 826 and 826A and Schedule 24. The fact that applying that regime produced no usable credit did not mean Accenture could move to the separate general regime for deducting business expenses.
The judge also rejected the finding that the withholding tax was itself an expense incurred to earn profits. The Tax Appeals Commissioner had found that it was a tax on income. The High Court held that such a tax was imposed after income had been earned rather than spent in earning that income.
The court further found there was no evidence supporting the proposition that Accenture could not conduct its foreign licensing business without incurring withholding tax, noting that operating through permanent establishments could have avoided that particular withholding mechanism.
Revenue succeeded on questions one and three to eleven. The court rejected Revenue’s challenge on the second question concerning the factual treatment of Argentinian withholding tax. Final orders were left for a further hearing.