A while back marketinglaw reported on a straight sets victory by tennis star Andre Agassi over UK Inland Revenue attempts to serve a tax assessment on fees for UK appearances even though the payment came nowhere near the UK. Now the case has gone to appeal.
Topic: Agassi loses tennis penalty shoot out
Who: Andre Agassi and HMRC
Where: House of Lords
When: May 2006
As previously reported on marketinglaw, Andre Agassi has been fighting a long-running tax battle against the UK authorities in respect of income earned by him from endorsing Nike and Head. Essentially Revenue and Customs had argued that because Mr Agassi appeared at tournaments in the UK, a proportion of the endorsement fees paid by Nike and Head should be subject to UK tax – despite the fact that neither Mr Agassi, his loan-out company nor the sports companies were UK-based.
The final result – from the House of Lords – has just been announced, and Mr Agassi has unfortunately suffered a 4-1 loss, reversing an earlier Court of Appeal verdict.
The Inland Revenue (now HMRC) introduced the original legislation in question back in 1986, following a series of Michael Jackson concerts. This obliged promoters and sponsors to deduct UK tax before paying stars for work carried out in this country.
However the Revenue also argued that as overseas entertainers and sports stars spent a proportion of the tax year carrying out endorsement or sponsorship activities whilst in the UK (such as playing at Wimbledon) then they were liable to pay UK taxes on an equivalent proportion of the endorsement/sponsorship sums they received, even if the contract was between a foreign company and a foreign resident.
Mr Agassi's lawyers argued that the principle of territoriality should be taken into account – that UK legislation should be presumed not to have extra-territorial effect unless it clearly and unambiguously stated otherwise. It was on this basis that the Court of Appeal had given judgment for Mr Agassi last year.
Although the case only concerned a tax assessment that Mr Agassi owed the relatively small sum of £27,520, it has been reported that if he had won the case the Revenue would have had to refund an estimated £500 million to other foreign stars in respect of sums previously paid.
End of the road?
Although the House of Lords has reached a definitive verdict that the Revenue's interpretation of the law is correct, and that UK tax can be imposed on transactions involving foreign stars and foreign companies, it is not quite the end of the dispute.
One of the problems not resolved by this case is how the tax due is calculated. Over the past few years it is reported that the Revenue have been attempting to raise the proportion of endorsement income raised relative to the proportion of time spent by the star in the UK, and that this is one of the reasons for this case reaching court.
Mr Agassi's advisers have already indicated that they are willing to go back to court if the Revenue seeks what it believes to be an unreasonable amount.
Why this matters:
This case is a useful reminder to those advertisers and agencies who hire overseas talent to come to the UK to shoot advertising materials (or other endorsement activities) that they need to ensure that the tax treatment of the talent's fee is adequately covered off in their artist services agreements, and that they withhold the correct amounts for the Revenue.
In addition of course any overseas talent who are hired by an overseas company for advertising shoots or other endorsement activities which occur in the UK should also be aware that they will be subject to a UK tax assessment.