Agassi v HM Inspector of Taxes

Sections 555 and 556 of the Income and Corporation Taxes Act 1988 may impose obligations on a foreign payer with no United Kingdom tax presence where the payment is connected with a non-resident sportsman’s United Kingdom activity. The territorial principle is a rule of construction, not an inflexible limit. The statutory purpose and context may establish extra-territorial effect. A payer’s possible inability to enforce or discharge the obligation does not prevent the payment from falling within section 555(2), and therefore does not prevent attribution of the payment to the sportsman under section 556.

André Agassi, a non-resident and non-UK domiciled professional tennis player, appealed against the Special Commissioners’ dismissal of his appeal against amended income-tax assessments for 1998/1999.

Foreign companies paid endorsement income to a company controlled by Mr Agassi. The payments were connected with his participation in United Kingdom tournaments. The central issue was whether section 556 of the Income and Corporation Taxes Act 1988 applied through section 556(5), given that the payments were made by foreign companies with no United Kingdom tax presence.

1. The appeal was dismissed. The amended assessments were not displaced.
2. Section 18(1)(a)(iii) of the Income and Corporation Taxes Act 1988 charges gains arising to a non-resident from a trade, profession or vocation exercised within the United Kingdom. The charge applies irrespective of the recipient’s residence or nationality, where payment is made, or the payer’s connection with the United Kingdom.
3. Sections 555 and 556 extend that charge and address avoidance and evasion. Section 556(5) requires the relevant payment to be one to which section 555(2) applies. The payments therefore fell within section 555(2) if the statutory provision applied to the foreign payers.
4. The territorial principle identified in Clark v Oceanic Contractors 56 TC 183 is a rule of construction. It does not impose an absolute territorial limit. The court must examine the language, context and purpose of the particular legislation.
5. Read in context, sections 555 and 556 showed a plain legislative intention to impose the deduction and accounting obligation on the person making the connected payment, irrespective of that person’s United Kingdom tax presence. Otherwise liability could readily be avoided by routing payment through an unconnected foreign company.
6. The possible unenforceability of the obligation against Nike and Head did not mean that section 555(2) failed to apply. Its application was sufficient to trigger section 556 and attribute the payments to Mr Agassi.

• Special Commissioners: dismissed Mr Agassi’s appeal in principle against amendments to his 1998/1999 assessments.
• High Court (Chancery Division): dismissed the appeal from that decision.