Game: Inland Revenue

Tax Case

Game: Inland Revenue

The High Court dismissed the taxpayer's appeal in the case of Agassi v Robinson.

A TENNIS PLAYER, resident and domiciled in the United States, submitted a self assessment tax return claiming losses. The Revenue opened an enquiry into the return and subsequently issued assessments charging him to tax, claiming that he had a tax presence in the United Kingdom. The High Court agreed that section 555(2), Taxes Act 1988 applied, and dismissed the taxpayer's appeal.

Background

The American appellant, Andre Agassi, an international tennis player, was ordinarily resident and domiciled outside the United Kingdom. He set up a company, Agassi Enterprises Inc, which he controlled, and through which he had endorsement contracts with Nike Inc and Head Sports AG, neither of which was resident or has a tax presence in the United Kingdom. He comes to the United Kingdom for a set number of days a year in order to play in tournaments, such as Wimbledon. The payments from Nike and Head to Agassi Enterprises derived partly from playing in these United Kingdom tournaments.

In November 1999, Mr Agassi submitted a United Kingdom self assessment tax return, which showed a loss of £63,689 on a gross income of £54,601, including £7,206 from Head and £35,755 from Nike.

In December, the Revenue opened an enquiry into the return, and issued a closure notice in April 2000. The notice was based on income of £23,750 from Head and £102,158 from Nike, and charged £27,520.40 tax. An amended assessment was issued in June 2000, against which Mr Agassi appealed.

The Special Commissioners dismissed the appeal, along with two other similar appeals brought by other tennis players. So Mr Agassi appealed to the High Court.

The issue was whether income paid by a non-resident company to another non-resident company came within sections 555 and 556, Taxes Act 1988 and the Income Tax (Entertainers and Sportsmen) Regulations SI 1987 No 530.

Section 555(2) states, in effect, that where a payment is made to a person and has a connection of a prescribed kind with the relevant activity, the person making the payment should deduct income tax and account for it to the Inland Revenue. Section 556 deems the sportsman's activity to be performed in the course of a trade within the United Kingdom, but section 556(5) provides that section 556 shall not apply unless section 555(2) or (3) applies to the payment. Mr Agassi said that section 555(2) had a territorial aspect, and applied where the payer could be made to deduct United Kingdom tax, i.e. where the payer had a presence in the United Kingdom.

(Patrick Way for the appellant; Bruce Carr for the Revenue.)

Judgment in the High Court

Mr Justice Lightman said that section 556 treats a sportsman's activities as a trade and attributes a payment, irrespective of to whom it is made, as his income. But this only happened where section 555(2) applied. The question to be answered was whether the payments from Nike and Head fell within section 555(2). Section 555 requires someone making a payment to a non-resident sportsman, who has the prescribed connection with a relevant activity to deduct tax and account for it to the Revenue. Thus, it appeared that the payments did fall within the provision.

He then turned to Mr Agassi's argument that the Taxes Act did not impose such a requirement on a foreigner, who has no connection with the United Kingdom. In effect, there was an implied territorial limitation. He relied on Clark v Oceanic Contractors Inc [1983] STC 35 in support.

The judge acknowledged that English tax legislation was broadly construed as territorial, but not necessarily. Statutes had often been held to have an extra-territorial effect and it was necessary to examine the limit imposed by the Taxes Act 1988 in respect of a person making a payment and why such a limit was imposed. The context was 'critical', according to the judge. The context is, first, that the legislation imposes a charge for income tax on non-residents performing sporting and entertainment activities in the United Kingdom, regardless of the connection to the United Kingdom of the person making the payment. Second, by sections 555 and 556, the legislation extends the charge to prevent avoidance and evasion. This makes it clear, said the judge, that the absence of any connection with the United Kingdom of the person making the payment is irrelevant. Furthermore, it was common ground that section 556 subjects non-residents to tax, if a payment is made from a United Kingdom company or a foreign company with a presence in the United Kingdom. It would be 'absurd' to suggest that the legislation intended liability to be avoided 'by the simple expedient of channelling the payment through a foreign company with no tax presence here'. If this were so, then tax would 'effectively become voluntary'.

Thus, according to Mr Justice Lightman, the 'plain and obvious' intention of sections 555 and 556 was to impose an obligation on the payer, regardless of his tax presence in the United Kingdom. Read in the context of the legislation as a whole, the clear purpose of section 555(2) was to impose liabilities on persons with no tax presence in the United Kingdom, who make connected payments, in this instance Nike and Head. Thus section 556(5) did not provide Mr Agassi with the means of escaping liability.

While the liabilities on Nike and Head could 'prove unenforceable', that did not mean that section 555(2) did not apply. The section did apply to the payments, and Nike and Head had an obligation to pay. This was sufficient to trigger section 556. The appeal was therefore dismissed.

Decision for the Revenue

(Reported at [2004] STC 610.)

Issue: 3975 / Categories: