Agassi v HM Inspector of Taxes

The territoriality principle is a strong rule of statutory construction. It applies particularly to provisions imposing a duty on a person outside the United Kingdom to deduct or account for tax, and to penal provisions. Clear words or a plainly implied legislative intention are required before such provisions receive extraterritorial effect.

A statutory scheme may extend substantive tax liability while leaving collection obligations territorially limited. Perceived opportunities for avoidance, differences between taxpayers, or unenforceability abroad do not justify disregarding territoriality where Parliament has not clearly done so.

Andre Agassi, a non-UK-resident and US-domiciled tennis player, appealed from Lightman J’s decision upholding the Special Commissioners’ conclusion that he was chargeable to income tax under section 556 of the Income and Corporation Taxes Act 1988.

Agassi performed in UK tournaments, while his controlled US company received endorsement payments from Nike Inc and Head Sports AG. The payments were connected with his UK activities, but the companies had no UK tax presence. The central issue was whether section 555(2) imposed a duty on those overseas payers to deduct and account for tax, so that section 556(2) treated the payments as made to Agassi.

1. Appeal allowed. The court declared that, in respect of payments made by Nike Inc and Head Sports AG to Agassi Enterprises Inc, Agassi was not to be treated for the purposes of the Tax Acts as the person to whom the payments were made.
2. Chapter III of Part XIII of the Income and Corporation Taxes Act 1988 forms a discrete code derived from Schedule 11 to the Finance Act 1986. Section 555 principally establishes a collection mechanism. Section 556(1) treats the relevant activity as a UK trade, profession or vocation, while section 556(2) attributes payments to the entertainer or sportsman where the prescribed conditions are met. Section 556(5) makes that attribution conditional on section 555(2) or (3) applying.
3. The court rejected the Revenue’s submission that section 555(2) extended to all payments within section 18(1)(a)(iii). The Income and Corporation Taxes Act 1988 was consolidating legislation. The section 555(2) obligation was absent from the predecessor provision and could not be imported into section 18 merely because both provisions appeared in the same consolidating Act.
4. The territoriality principle, explained in Clark v Oceanic Contractors Inc [1983] 2 AC 130, is a strong constructional presumption. It applies to duties to deduct or account for tax. The question is whether Parliament clearly enacted or plainly implied an intention to widen the provision beyond its prima facie territorial sphere.
5. Section 555(2) imposed a burdensome and penal obligation on the payer. The practical difficulty of enforcing that obligation against an overseas company was relevant to whether the obligation applied at all. Nothing in the statutory context supplied the necessary clear words or implication to displace territoriality.
6. The perceived inconsistency or avoidance opportunity did not make the result absurd. Any further extension of the charge was a matter for Parliament.

• Court of Appeal (Civil Division) [2004] EWCA Civ 1518: appeal allowed and declaration made that Agassi was not to be treated as the recipient of the payments for the purposes of the Tax Acts.
• High Court, Chancery Division: Lightman J upheld the Special Commissioners’ decision, on different grounds, that Agassi was assessable under section 556 of the Income and Corporation Taxes Act 1988.
• Special Commissioners: concluded that Agassi could be assessed in respect of the connected payments.