UNITED KINGDOM: House of Lords decides that AGASSI must pay UK tax on his sponsorship revenue

The Highest Court in the United Kingdom has taken the final decision in the AGASSI case (Agassi (Respondent) v. Robinson (Her Majesty’s Inspector of Taxes) (Appellant), Session 2005-06 [2006]UKHL 23).
At first instance the Inland Revenue had won its case, in first appeal Agassi succeeded but now the House of Lords have by majority vote (4 to 1)held against Agassi.

The facts of the case are rather straightforward: Agassi received substantial sponsorship amounts from companies (Nike and HEAD) which were not based in the United Kingdom. The payments were made to his company, which was resident in the United States. Hence the payments never entered into or through the UK territory. The UK Inland Revenue claimed an amount of UK tax on the share of these sponsorship payments that was proportionate to the fact that Agassi participated in inter alia the Wimbledon tournament. The amount claimed was in the order of USD 51,000.

The main argument of the (4 to 1 majority of the) House of Lords appears to be that ?? if Mr. Agassi is right, the ease with which the tax liability imposed by section 556 could be avoided simply by ensuring that the potentially taxable payments were made by foreign entities with no residence or trading presence in this country would render payment of the tax to all intents voluntary. That cannot, in my opinion, have been Parliament?s intention? (of including Sec. 555 and 556, added by RB).?

After this decision, the UK Inland Revenue does not have to make refunds to artists and athletes who had paid tax on the basis of similar fact patterns (for an amount said to be in the region of 500 million GBP).

Sponsors and professional athletes and sportsmen do still have to take good notice of their UK tax obligations that follow from payments and income that is related to, or attributable to, performances in the United Kingdom.

As for Mr. Agassi, in order to avoid international double taxation, the US tax authorities (Internal Revenue Service) must now accept that the UK tax due may indeed be levied by the UK under the tax treaty concluded between the United States and the United Kingdom. If the IRS would not accept this, a mutual agreement procedure may have to be started to resolve this issue.