Agassi (Respondent) v. Robinson (Her Majesty's Inspector of Taxes) (Appellant)

A non-resident entertainer or sportsman is chargeable to United Kingdom income tax on payments connected in the prescribed manner with activities performed in the United Kingdom, including payments made to a controlled company. For the purposes of section 556(5) of the Income and Corporation Taxes Act 1988, the relevant questions concern the nature of the payment and its prescribed connection with the activity. The payer’s foreign identity or absence of a United Kingdom trading presence does not remove the performer’s primary liability.

Any implied territorial limitation protecting an overseas payer from the deduction and accounting duties under section 555(2) does not extend to the performer’s primary tax charge.

Andre Agassi, a non-resident professional tennis player, competed in United Kingdom tournaments. Nike Inc and Head Sport AG, neither of which was resident or trading in the United Kingdom, made overseas sponsorship payments to his controlled company. The payments had the prescribed connection with his United Kingdom sporting activities.

The Inspector amended Mr Agassi’s self-assessment to include additional tax attributable to those payments. The Special Commissioners and Lightman J upheld the charge, but the Court of Appeal, in [2004] EWCA Civ 1518, decided for the taxpayer.

The central issue was whether section 555(2) of the Income and Corporation Taxes Act 1988 applied, for the purposes of section 556(5), where the payer had no residence, trading presence or assets in the United Kingdom.

1. Appeal allowed by a majority of four to one. Lord Scott and Lord Mance delivered the substantive majority speeches. Lord Nicholls and Lord Hope agreed with both. Lord Walker dissented. The taxpayer was liable on the sponsorship payments, and the Revenue was awarded its costs in the House and below.

2. Per Lord Scott, sections 555 and 556 of the Income and Corporation Taxes Act 1988 were intended to subject foreign entertainers and sportsmen to tax on profits or gains connected with their United Kingdom commercial activities. That purpose included payments made to companies controlled by them. Construing the legislation otherwise would permit the charge to be avoided merely by arranging for a foreign entity without a United Kingdom presence to make the payment.

3. Per Lord Scott and Lord Mance, section 556(5) directs attention to the character of the payment. Two questions arise: whether a non-excluded payment has been made and whether it has a connection of the prescribed kind with the relevant United Kingdom activity. If both are answered affirmatively, the payment is one to which section 555(2) applies for the purposes of section 556(5). The payer’s identity and territorial presence do not restrict the performer’s primary tax liability.

4. Lord Scott considered that the natural meaning of section 555(2) should apply without an implied territorial restriction. The presumption against extra-territorial effect is a rule of statutory construction and was displaced by the legislative scheme and purpose.

5. Lord Mance considered that section 555(2) probably contained an implied territorial limitation protecting a foreign payer without a United Kingdom presence from the deduction and accounting obligations. He nevertheless held that such a limitation did not pass through section 556(5) into the primary charge on the entertainer or sportsman. The collection obligation and the taxpayer’s substantive liability were distinct.

6. Lord Walker dissented. He considered that the statutory charge was routed through the collection machinery and that Parliament had not indicated sufficiently clearly an intention to impose penal deduction obligations on a foreign payer lacking any United Kingdom tax presence. He would have dismissed the appeal.

1. House of Lords: Allowed the Revenue’s appeal by a majority of four to one and restored the conclusion that the sponsorship payments were taxable.
2. Court of Appeal: In [2004] EWCA Civ 1518, allowed the taxpayer’s appeal and held that the relevant statutory provisions did not apply to the payments by foreign companies without a United Kingdom trading presence.
3. High Court: Lightman J agreed with the Special Commissioners and upheld the assessment.
4. Special Commissioners: Rejected the taxpayer’s construction and upheld the application of the statutory charge.