no tax on ex-uk sponsorship for non-resident sports stars and entertainers
Non-resident entertainers and sports stars will not have to pay tax on non-UK sponsorship payments after tennis player Andre Agassi and his UK accountants Tenon Media won a case against the Inland Revenue.
This came after Agassi lost his original appeal to the High Court earlier this year. The first appeal followed a Special Commissioners decision that he should pay income tax on sponsorship payments in connection with playing tennis in the UK.
But Lord Justice Buxton, Lord Justice Sedley and Lord Justice Jacob ruled in the Court of Appeal that Agassi is not liable to pay UK tax when his US company receives endorsement income from non-UK sponsors.
Tenon said the case stemmed from the Revenue seeking to extend its domestic withholding tax legislation but this was not accepted by the three Court of Appeal judges. The case had implications for other non-UK resident entertainers.
Julian Hedley, office managing director of Tenon Media, said: "This is the result of five years' hard work. This arose from the Inland Revenue's unilateral decision to change its approach to the taxation of non-resident entertainers and sports people."
Agassi is ordinarily resident and domiciled outside the UK. He only comes to the UK to play tennis tournaments, while the payments were made by Nike and Head, neither of which have a tax presence in the UK, to his non-UK company, Agassi Enterprises.
Jonathan Conder, private client partner at Macfarlanes, said: "Specific provisions have been developed for non-UK resident entertainers and sportsmen that are contained in Section 555 to 558 of the Income and Corporation Taxes Act 1988. A withholding tax at basic rate is levied on payments made for a UK appearance of a non-resident entertainer or sportsperson.
"The tax covers a payment or transfer made for, or which derives directly or indirectly from, the performance in the UK of any activity that is either in their character as an entertainer or sportsperson on or in connection with a commercial occasion or event."
Agassi signed endorsement contracts with Nike and Head through Agassi Enterprises, which is based in the US. According to Conder, he argued that these fees should not be subject to withholding tax because of the "territoriality principle inherent in UK legislation which meant that it would be unfair or impossible to force Nike and Head to withhold the tax at source and pass it on to the Revenue".
The Court of Appeal in Agassi v Robinson agreed with Agassi that Section 555(2) of the Act, which deals with the collection obligation on the payer, did not apply to Nike and Head because they had no UK tax presence. This meant that payments by Nike and Head to Agassi's company could not count as payments made indirectly to him.
"The High Court judge had held that the territoriality principle would have to be disapplied in this case because to do otherwise would disrupt the purpose of the legislation," said Conder.
"The Court of Appeal did not agree with this holding that the territoriality principle was of particular strength in relation not only to legislation imposing a charge to tax but also in relation to legislation imposing a duty to collect of account for tax. The obligation imposed on the payer by Section 555(2) was not only burdensome but penal. Issues of enforceability and the imposition of penalties indicated that Section 555(2) should not be given extra territorial effect."
• Andre Agassi wins second tax appeal against the UK Inland Revenue
• Non-resident entertainers and sports stars will not have to pay tax on non-UK sponsorship payments
• This stops the UK Revenue from extending its domestic withholding tax legislation
• Court of Appeal said Nike and Head could not be forced to withhold tax at source and pass it on to the Revenue
• The High Court stated that the 'territoriality principle' would not apply in these cases otherwise the purpose of the legislation would be undermined
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