>> it did not seem to work fully idn punny is xn--48j.net which translates in to U.net
So where is it exactly translated to U.net from xn--48j.net.
Kindly check that one out..
if it is showing as boxes in SQL Server, then it was a Unicode character for sure and if you have the language pack installed in your server, it would display that properly.
Else the unicode characters are tampared as you mentioned earlier and hence you haven't passed that correctly to your SQL Server..
And as mentioned earlier, have you prefixed your idn like N'xn--48j.net' so that your unicode characters are not lost..