Irish Revenue has updated its Section 110 guidance to clarify how qualifying companies can obtain relief for foreign withholding tax under Schedule 24, including where foreign tax exceeds the Irish tax attributable to the relevant income.
Irish Revenue has updated its guidance on the tax treatment of foreign withholding tax for Section 110 qualifying companies, setting out how relief may be available under Schedule 24 where income has been taxed at source in another jurisdiction.
The changes were issued through eBrief No. 120/26 on 21 August 2026, which updates Tax and Duty Manual Part 04-09-01 – Section 110: entitlement to treatment. A new Paragraph 8 – Treatment of foreign withholding tax has been added to the manual, with examples explaining the application of the rules.
Foreign withholding tax treatment
Section 110 of the Taxes Consolidation Act (TCA) 1997 provides the framework for a qualifying company, including structures used for international corporate finance, structured finance and securitisation transactions.
Although the profits or gains of a qualifying company are chargeable to corporation tax under Case III of Schedule D, those profits or gains are calculated using the provisions applicable to Case I of Schedule D.
As a result, the treatment of foreign tax on an income stream follows the rules that would apply to a trading company where the same income is included in calculating the profits or gains of its trade.
Irish Revenue confirms that foreign withholding tax is a tax on income and, under section 81(2)(p), cannot be deducted when calculating the profits or gains of a qualifying company.
Relief may instead be available under Schedule 24 for foreign withholding tax suffered on the company’s income.
Schedule 24 relief
Where a qualifying company receives income, such as interest income, that has been subject to foreign withholding tax in a country with which Ireland has a DTA, relief may be available through a credit, a reduction in income, or a combination of both under Schedule 24.
For credit relief, paragraph 4(2) of Schedule 24 provides that the foreign tax credit cannot exceed the corporation tax attributable to the relevant income.
The calculation is based on the Irish measure of the income rather than simply the amount of foreign income or foreign tax paid. Paragraph 4(2A) of Schedule 24 provides the methodology for calculating this amount by taking the relevant income and deducting a rateable allocation of expenses included in calculating the profits or gains of the trade.
The guidance confirms that this methodology also applies to qualifying companies because their profits or gains are calculated according to Case I principles.
The Irish Measure of Foreign Income (IMI) is calculated using the following formula:
IMI = P x I / R
Under the formula:
- P is the amount of the profits or gains of the trade for the accounting period before deducting any amount under paragraph 7(3)(c);
- I is the amount of the relevant income for the accounting period before deducting any disbursements or expenses of the trade; and
- R is the total amount receivable by the company in carrying on the trade during the accounting period.
Relief where foreign tax exceeds Irish tax
The updated guidance also addresses cases where the foreign effective tax rate on an income stream is higher than the Irish effective tax rate.
In these circumstances, the full amount of foreign withholding tax may not be available as a credit against Irish corporation tax. However, relief for the non-creditable portion may be available through a reduction in income under paragraph 7(3)(c) of Schedule 24.
For this purpose, the relevant “income” is the Irish measure of the income calculated under paragraph 4(2A).
The reduction is subject to a limit. The amount of income reduced for foreign tax cannot cause the Irish measure of the income to fall below zero.
Irish Revenue has included two examples in the updated manual to demonstrate how Schedule 24 double tax relief applies to foreign withholding tax suffered by a qualifying company in a country with which Ireland has a DTA.
Other Section 110 requirements
The wider Section 110 framework requires a qualifying company to remain resident in Ireland and to acquire, hold or create qualifying assets. It must carry on the business of holding and/or managing those assets in Ireland and cannot undertake activities outside those connected with that business, apart from ancillary activities.
On the first day it acquires qualifying assets, their market value must be at least EUR 10,000,000. The company is not required to maintain that minimum value after the first day.
A qualifying company must also notify Irish Revenue of its status using the designated form, while transactions and arrangements generally must be entered into on an arm’s length basis.
Its profits are calculated under Case I of Schedule D, although certain specific statutory tests require the relevant income or expense itself to have a trading character.
The Section 110 rules also contain provisions governing Profit Participating Notes (PPNs), interest deductibility, connected parties, Irish property businesses and arrangements involving potential tax avoidance. For chargeable periods beginning on or after 1 January 2020, transfer pricing rules apply to transactions between associated persons.
The updated guidance therefore clarifies the specific mechanism through which Section 110 qualifying companies can obtain relief for foreign withholding tax, while confirming that the tax cannot instead be treated as a deductible expense in calculating their profits.
