House of Lords
|Session 2005 - 06|
Publications on the Internet
PDF Print Version
Agassi (Respondent) v. Robinson (Her Majesty's Inspector of Taxes) (Appellant)
LORD NICHOLLS OF BIRKENHEAD
1. I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Scott of Foscote and Lord Mance. For the reasons they give, with which I agree, I would allow this appeal.
LORD HOPE OF CRAIGHEAD
2. I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Scott of Foscote and Lord Mance. I agree with them, and for the reasons they give I would allow the appeal.
LORD SCOTT OF FOSCOTE
3. The Income and Corporation Taxes Act 1988 ("the 1988 Act"), sections 555 to 558, and the Income Tax (Entertainers and Sportsmen) Regulations 1987 (SI 1987/530) (the 1987 Regulations) make provision for the taxation of entertainers and sportsmen who are not resident in the United Kingdom in respect of their profits or gains arising from commercial activity carried out by them within the United Kingdom. The relevant statutory provisions were first enacted in the Finance Act 1986, section 44, and Schedule 11 to that Act under which the 1987 Regulations were made. The 1988 Act is a consolidating Act and the relevant provisions in the 1986 Act and its Schedule 11 became sections 555 to 558 in the 1988 Act. The 1987 Regulations continue to have effect as if made under the 1988 Act (see Interpretation Act 1978 section 17(2)(b)). This tax appeal raises a point of construction of sections 555 and 556 and, in particular, the question whether section 555(2) should be given its literal effect or a limited effect so as to exclude from its scope persons who neither reside or carry on any trade in the United Kingdom. The well-known principle of statutory construction that it should generally be presumed that a statute is not intended to have extra-territorial effect is relied on by the taxpayer, Mr Andre Agassi. The Special Commissioners, however, declined to give section 555(2) the limited effect contended for and, on appeal, Lightman J agreed with them. But the Court of Appeal disagreed and the issue of construction must be resolved by your Lordships.
4. The relevant facts are not in dispute and can be shortly stated. The taxpayer, Mr Agassi, is a very well known professional tennis player. He is neither resident nor domiciled in the United Kingdom and never has been. In the tax year relevant to this appeal, 1998/1999, Mr Agassi played in United Kingdom tennis tournaments, including Wimbledon.
5. Mr Agassi owns and controls a company, Agassi Enterprises Inc. (Agassi Inc.), whose business includes entering into contracts with manufacturers of sports clothing and equipment under which Mr Agassi sponsors or advertises the manufacturers' products in return for payments made to Agassi Inc. Two contracts relevant to this appeal were entered into. One was a contract with Nike Inc. ('Nike') dated 1 January 1995: the other was a contract with Head Sport AG ('Head') dated 1 January 1999. Pursuant to these contracts Agassi Inc. received payments during the 1998/1999 tax year.
6. Neither Nike nor Head was resident in the United Kingdom in the 1998/1999 tax year, nor did either company carry on any trade in the United Kingdom, whether through a branch or agency or a permanent establishment. Nor were their payments to Agassi Inc. made in the United Kingdom. The payments were, however, payments that had a connection of a "prescribed kind" (see Regulation 3 of the 1987 Regulations) with a "relevant activity" (see Regulation 6) performed by Mr Agassi in the United Kingdom.
7. Mr Agassi submitted a self-assessment tax return for the 1998/1999 tax year which showed certain receipts from Nike and Head but the Inspector of Taxes issued a closure notice (see section 28A(5) of the Taxes Management Act 1970) based on additional payments said to have been received by Agassi Inc. from Nike and Head. The closure notice gave rise to a notice of amendment of Mr Agassi's self-assessment tax return proposing the addition of an income tax charge of £27,500 odd. Mr Agassi appealed against the notice and the proceedings to which I have already referred followed.
The statutory provisions
8. In order to understand the submissions about section 555 and 556 that have been made to your Lordships it is necessary to refer to the problems about the tax treatment of foreign entertainers and sportsmen that led to the enactment of the relevant provisions of the Finance Act 1986. There were a number of perceived problems in applying to foreign entertainers and sportsmen the charging provisions of section 108 of the 1970 Act (which became section 18(1)(a)(iii) of the 1988 Act). Section 108 imposed a Schedule D charge to tax on the profits or gains of any person, whether or not resident in the United Kingdom, from any trade, profession or vocation carried on in the United Kingdom.
9. The first problem related to the concept of carrying on a trade, profession or vocation. Was a person who made only single or infrequent visits to this country, eg, playing in, say, two tennis tournaments, carrying on a trade, profession or vocation in this country? Second, would income arising from commercial endorsements, eg wearing Nike tennis shoes and playing with a Head tennis racquet, be regarded as part of the profits or gains of carrying on the trade, profession or vocation? Third, the section 108 charge only applied to the person carrying on the trade, profession or vocation. Would payments made to a foreign company, albeit controlled by the person exercising the trade, profession or vocation, be caught by the charge? And, fourth, collection of the tax from a foreign entertainer or sportsman, whose visits to this country might be sporadic and who would often have no assets in this country, was not always practicable. This was particularly so because the basis of assessment was the preceding year basis. These were the problems that were addressed in the 1986 Act by provisions that became, on consolidation, sections 555 and 556 of the 1988 Act.
10. It is convenient at this point to set out in full sections 555 and 556 of the 1988 Act.
11. Section 44 of the 1986 Act simply said that "Schedule 11 to this Act (which relates to non-resident entertainers and sportsmen) shall have effect". The problem of collecting the tax charged by section 108 of the 1970 Act (now section 18(1)(a)(iii) of the 1988 Act) was addressed by paragraph 8(1) of the Schedule (section 557(1) of the 1988 Act) which altered the basis of assessment from a preceding year basis to a current year basis, and paragraph 2(1) (section 555(2) of the 1988 Act) which required a person making a payment which had "a connection of a prescribed kind with the relevant activity" to deduct a sum representing income tax and account to the Inland Revenue for the sum. This requirement for the payer to deduct tax and account for it to the Revenue applied whether the payment were made to the entertainer/sportsman direct or to a company controlled by the entertainer/sportsman. Paragraph 2 contained various consequential provisions including, in sub-paragraph (7), a provision (now section 555(6) of the 1988 Act) that said
12. The problem about the scale of activities that could constitute the conduct of a trade, profession or vocation was addressed by paragraph 6(1) and (4) of the Schedule (section 556(1) of the 1988 Act) and the problem about payments to companies owned and controlled by the entertainer or sportsman was dealt with by paragraph 7 of the Schedule (section 556(2) of the 1988 Act). Paragraph 6 and paragraph 7 each had a sub-paragraph (6(2) and 7(4)) which said that the paragraph was not to apply unless the payment was one to which paragraph 2 applied. These provisions became, on consolidation, the first part of section 556(5). And paragraph 7 had a sub-paragraph which said that the paragraph was not to apply "in such circumstances as may be prescribed". This became, on consolidation, the second part of section 556(5).
13. Leaving aside for the moment the effect of section 556(5), it is common ground that the payments by Nike and Head to Agassi Inc. that led to the closure notice and to the proposed amendment of Mr Agassi's self-assessment return were payments caught by section 556(2). Subject to subsection (5), therefore, it is agreed that Mr Agassi would be properly chargeable to tax on the Nike and Head payments to Agassi Inc. But sub-section (5) says that section 556 shall not apply unless the payment is one to which section 555(2) applies. So the issue is whether or not, for the purposes of section 556(5), section 555(2) applies to the payments made by Nike and Head to Agassi Inc.
14. If the language of section 555(2) is read literally, the sub-section clearly applies to those payments. The payments have certainly been made and they have a connection of the prescribed kind with the relevant activity. None of that is in dispute. But if section 555(2) does apply to the payments, Nike and Head were thereby placed under a statutory obligation to deduct income tax from the payments and account to the Revenue for the deducted sum. This, says counsel for Mr Agassi, cannot be right. Nike and Head are foreign companies with, in the tax year 1998/1999, no trading presence in the United Kingdom. It is therefore to be presumed that Parliament did not intend them to be caught by the tax collection provisions imposed by the sub-section and by regulation 9 of the 1987 Regulations. Regulation 9 requires a section 555(2) payer to make quarterly tax returns to the Inland Revenue and to respond to requests by the Revenue for particulars of the payments that have been made. The penal enforcement provisions of the Taxes Management Act 1970 are applicable. Parliament, so the argument goes, cannot have intended to subject foreign individuals and companies with no residence or trading presence in this country to these liabilities.
15. The Revenue, on the other hand, point to the consequential incongruities if these arguments are right. It would mean that foreign entertainers and sportsmen, who earn money from commercial sponsorship contracts connected with their professional activities in this country, can avoid liability to tax on this money simply by ensuring that the money is paid by a foreign company with no trading presence or assets in this country.
16. Counsel for Mr Agassi relies very heavily on well-known authorities such as Ex p Blain (1879) 12 Ch.D.522 and, more recently, Clark (Inspector of Taxes) v Oceanic Contractors Inc  2 AC 130. In Ex parte Blain James LJ referred at p 526 to the
And in the Oceanic Contractors case, Lord Scarman, having cited the above passage with approval repeated, at p 145, the same principle. But Lord Scarman noted also that "the principle is a rule of construction only" and that "British tax liability has never been exclusively limited to British subjects and foreigners resident within the jurisdiction". And Lord Wilberforce, at p 152, referred to the "territorial principle" as being "really a rule of construction of statutes expressed in general terms". The question to be asked, said Lord Wilberforce, is "who is within the legislative grasp, or intendment, of the statute under consideration?"
17. My Lords, I have come to the clear conclusion in the present case that the legislative intendment in relation to sections 555 and 556, and their statutory predecessors in the 1986 Act, was that foreign entertainers and sportsmen who, or whose controlled companies, receive payments in connection with their commercial activities in the United Kingdom should be subject to the section 18(1)(a)(iii) charge to tax and that the territorial principle cannot be implied so as to limit the effect of the clear language of section 555(2). My reasons, expressed in no particular order of importance, are as follows: