Tax Appeals Commission
Tax Appeals Commission
Can you comment on noteworthy determinations from the Tax Appeals Commission from the first quarter of 2024?
A particular determination of interest was 47TACD2024, which dealt with the deductibility of royalty withholding taxes (“RWHT”). This was the latest of a number of determinations relating to the deductibility of foreign taxes.
The appellant licenced its technology solutions to a large number of distributors internationally. A number of licensees deducted RWHT at source and the appellant claimed a corporation tax deduction for the RWHT under section 81 of the Taxes Consolidation Act 1997 (“TCA 1997”) on the basis that they were incurred wholly and exclusively for the purpose of its trade. Revenue argued that RWHT are not a deductible expense, one of the reasons being that foreign RWHT are, by their nature, taxes on income.
The Appeal Commissioner found in favour of the appellant by determining that it had shown on the balance of probabilities that it met the test for deductibility as outlined in the UK case Strong & Co of Romsey Limited v Woodifield (Surveyor of Taxes) 5 TC 215.
The facts of this case were similar to a 2023 determination (128TACD2023), in which the Appeal Commissioner also found in favour of the appellant. It is worth noting that the accounting periods in question for both cases predated the introduction of section 81(2)(p) TCA 1997, which specifically disallows a deduction in respect of any taxes on income. The Appeal Commissioners in both cases accepted that the RWHT were taxes on income but noted a Digital Services Tax is also a tax on income and may be allowable as a deduction, as acknowledged by Revenue. Therefore, there may be some doubt over whether the introduction of section 81(2)(p) TCA 1997 would necessarily deny a deduction for foreign RWHT.
It is also worth noting that credits in respect of the RWHT were not available to the appellants in both cases. The determinations do not provide any real clarity on the order of claiming credits under schedule 24 TCA 1997 versus a deduction under section 81 TCA 1997 where both options are available to a company.
Both the 2023 and 2024 determinations are being appealed to the High Court by Revenue, the outcomes of which may provide further clarity on this topic.
Content adapted from Finance Dublin's The Irish Tax Monitor.