When Andre received payment for UK sporting activities, withholding tax had been deducted at source. He objected and the case went to court. What’s the verdict on payments to performers or sports-people for UK work?
Topic: Personalities in advertising
Who: Andre Agassi and S Robinson (HM Inspector of Taxes)
Where: The UK
When: March 2004
HM Inspector of Taxes dealt with claims by a famous American tennis star. Mr Agassi was
complaining about the UK tax treatment of payments made for his sporting activities in the UK. Withholding tax had been deducted from these payments at source and Mr Agassi said that this should not have been done.
He argued that this was because neither the paying party nor the receiving party (probably a loan out company controlled by Mr Agassi) had a tax presence in the UK. The essence of their argument was that there is a territorial limitation on the Inland Revenue's ability to raise taxes which means that at least one of the parties must have a tax connection with the UK for UK taxing rules to apply.
The Inland Revenue countered that under Section 556 and 555 (entertainers and sportsmen) of the Income and Corporation Taxes Act 1988, the legislation effectively had extra-territorial effect. In other words, the liability to withholding tax arose purely as a result of a payment being made to an entertainer or sports person in respect of activities in the UK, and this applied regardless of whether either the paying party, the receiving party or Mr Agassi had a tax presence in the United Kingdom.
Mr Justice Lightman held that on many occasions statutes have been held on their true construction to have extra-territorial effect, and that in this case, the plain and obvious intention of the legislation was to impose an obligation on the person making the payment irrespective of his tax presence here.
Why this matters:
The need to deduct withholding tax often comes into particular focus when making payments to non-UK resident performers who attend UK shoots for commercials. This judgement makes it crystal clear that provided the shoot occurs in the UK, withholding tax will have to be deducted from any ensuing payments in respect of the performers' services. This will be the case even if the payment is being made by a non-UK entity to a non UK recipient/performer.