Agassi v Robinson (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Buxton,Lord Justice Sedley,Lord Justice Jacob |
| Judgment Date | 02 December 2005 |
| Neutral Citation | [2004] EWCA Civ 1518 |
| Docket Number | Case No: C3/2004/0829 |
| Court | Court of Appeal (Civil Division) |
| Date | 02 December 2005 |
[2004] EWCA Civ 1518
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE LIGHTMAN
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Buxton
Lord Justice Sedley and
Lord Justice Jacob
Case No: C3/2004/0829
Mr Patrick Way (instructed by Christopher Mills, Tenon Media) for the Appellant
Mr Bruce Carr (instructed by The Solicitor of the Inland Revenue) for the Respondent
The circumstances of the appeal
4. Mr Andre Agassi appeals against a decision of Mr Justice Lightman upholding, on somewhat different grounds, a decision of the Special Commissioners that Mr Agassi can be assessed to income tax under section 556 of the Income and Corporation Taxes Act 1988 [the 1988 Act] in respect of payments connected with his activities in the United Kingdom as a sportsman.
5. Mr Agassi is an international tennis player ordinarily resident and domiciled outside the United Kingdom. During the relevant tax years he was a resident of the USA. Like many sportsmen in his position: (1) he set up a company, Agassi Enterprises Inc ("Enterprises") controlled by himself, and through the Company he entered into endorsement contracts with two manufacturers of sports clothing and equipment, Nike Inc [Nike] and Head Sports AG [Head], neither of which is resident or has a tax presence in the UK; (2) he comes to the UK for a limited number of days a year in order to play in tournaments such as Wimbledon; and (3) Enterprises receives from those manufacturers payments which derive (at least in part) from Mr Agassis's activities in playing in those tournaments.
6. There are two provisions of the 1988 Act that might at first sight apply to Mr Agassi's case. First, Section 18(1) (a) (iii) of the 1988 Act provides that tax is to be charged under Schedule D in relation to "the annual profits or gains arising or accruing-
(iii) to any person, whether a Commonwealth citizen or not, although not resident in the United Kingdom …from any trade profession or vocation exercised within the United Kingdom."
It is agreed that section 18 imposes a charge irrespective of (1) the residence or nationality of the recipient; (2) where the payment is made; and (3) whether the payment is made by a person with any connection with the UK. It is however further agreed that that provision taken alone is inapplicable in this case because the payments are made, and thus the gains or profits accrue, to Enterprises and not, or at least not directly, to Mr Agassi. It may be noted, in connection with a point that will have to be addressed later, that the protection from charge, if that is the right expression, arises simply from the existence of Enterprises as a legal entity separate from Mr Agassi. It is not dependent on the fact that Enterprises has no tax presence in the United Kingdom.
7. Second, the 1988 Act makes special provision in Chapter III of Part XIII for the case of "Entertainers and Sportsmen" such as Mr Agassi. Within that Part, sections 555 and 556, and certain parts of the Regulations made under them, are crucial for our purposes, and in order to understand the issues it is necessary to set out the relevant legislation in full.
The statutory scheme
8. "ENTERTAINERS AND SPORTSMEN
555 Payment of tax
(1) Where a person who is an entertainer or sportsman of a prescribed description performs an activity of a prescribed description in the United Kingdom ("a relevant activity"), this Chapter shall apply if he is not resident in the United Kingdom in the year of assessment in which the relevant activity is performed.
(2) Where a payment is made (to whatever person) and it has a connection of a prescribed kind with the relevant activity, the person by whom it is made shall on making it deduct out of it a sum representing income tax and shall account to the Board for the sum.
(3) Where a transfer is made (to whatever person) and it has a connection of a prescribed kind with the relevant activity, the person by whom it is made shall account to the Board for a sum representing income tax….
(6) This section shall not apply to payments or transfers of such a kind as may be prescribed….
(8) Where in accordance with subsections (2) to (7) above a person pays a sum to the Board, they shall treat it as having been paid on account of a liability of another person to income tax or corporation tax; and the liability and the other person shall be such as are found in accordance with prescribed rules….
556 Activity treated as a trade etc and attribution of income
(1) Where a payment is made (to whatever person) and it has a connection of the prescribed kind with the relevant activity, the activity shall be treated for the purpose of the Tax Acts as performed in the course of a trade, profession or vocation exercised by the entertainer or sportsman within the United Kingdom, to the extent that (apart from this subsection) it would not be so treated.
(2) Where a payment is made to a person who fulfils a prescribed description but is not the entertainer or sportsman and the payment has a connection of the prescribed kind with the relevant activity-
(a) the entertainer or sportsman shall be treated for the purposes of the Tax Acts as the person to whom the payment is made; and
(b) the payment shall be treated for those purposes as made to him in the course of a trade, profession or vocation exercised by him within the United Kingdom (whether or not he would be treated as exercising such a trade, profession or vocation apart from this paragraph) ….
(5) This section shall not apply unless the payment or transfer is one to which section 555( 2) or (3) applies, and subsections (2) and (3) above shall not apply in such circumstances as may be prescribed."
9. Under a power recognised in the 1988 Act, the Income Tax (Entertainers and Sportsmen) Regulations 1987 ("the Regulations") in Regulation 3(2) prescribes the connection between the payment and the activity for the purposes of sections 555 and 556:
"a payment or transfer made for, [or] in respect of, or which in any way derives either directly or indirectly from the performance of the relevant activity has a connection of the prescribed kind with the relevant activity;"
and in regulation 6 prescribes the relevant activity:
"(1) Subject to this regulation, any activity performed in the United Kingdom by an entertainer (whether alone or involving others) of any of the descriptions in paragraph (2) is an activity of a prescribed description ('relevant activity') for the purposes of paragraph 1 of Schedule 11, that Schedule and these Regulations;
(2) a relevant activity to which paragraph (1) refers is an activity performed in the United Kingdom by an entertainer in his character as an entertainer on or in connection with a commercial occasion or event…"
10. I will have to return to what is a matter of strong controversy in this appeal, the overall objective or "purpose" of these provisions. It can however be agreed that the scheme contains the following elements. First, section 555 provides a collection mechanism, whereby persons making payments to which the section relates are obliged to deduct from those payments, and account to the Revenue, for the standard rate tax relevant to those payments. Second, section 556 makes two provisions as to liability to tax. Those provisions are, first, in s 556(1), read together with the Regulations, it is confirmed that, in effect any, activity of an entertainer within the United Kingdom, however transient, counts as the exercise of a trade in the United Kingdom under section 18(1) (a) (iii) . That provision may not have been necessary: it would seem to fall within the category of avoidance of doubt. Second, and certainly of crucial importance in this case, section 556(2) extends, in the case of entertainers and sportsmen, the rule noted under section 18 that the payment has to be made to the person to be charged to tax. Section 556(2), read with the reference to "prescribed description" in Regulation 7(2) (a), provides that in cases to which this scheme extends "person" in section 18 includes any person under the control of the entertainer: in the present case, Enterprises.
11. The 1988 Act is a consolidating statute, a consideration to which I shall have to return. At this stage it is relevant to note that sections 555 and 556 are transcribed from Schedule 11 to the Finance Act 1986, where these provisions as to entertainers and sportsmen were introduced for the first time. The Regulations were made in 1987, under the vires of the 1986 Act, but by virtue of section 17(2) (b) of the Interpretation Act 1978 now have validity as if they had been made under the 1988 Act. That is the reason for the reference in Regulation 6(1), otherwise inept in the context of the 1988 Act, to paragraph 1 of Schedule 11. That also demonstrates that Chapter III of Part XIII of the 1988 Act, of which sections 555 and 556 form part, has to be read as a discrete code, just as it predecessor provision, Schedule 11 to the 1986 Act, was a discrete code.
The issues
12. Mr Agassi's case is that he is not liable to tax on the payments made to Enterprises by Nike and Head. That is because payments made to Enterprises only count as payments made to him if section 556(2) applies to them. By section 556(5), section 556(2) is disapplied in cases where the collection obligation on the payer imposed by section 555(2) does not arise. But section 555(2) cannot apply to impose a collection obligation on Nike and Head because they have no "tax...
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