Agassi (Respondent) v. Robinson (Her Majesty's Inspector of Taxes) (Appellant)
(1) I am impressed by the Revenue's point 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.
(2) The disapplication of section 556 envisaged by sub-section (5) requires, in my opinion, attention to the nature and status of the payment, not to the identity of the payer. In order to know whether for section 556(5) purposes the payment is one to which section 555(2) applies, two, and in my opinion only two, questions need to be asked. First, has a payment been made (to whatever person), not being a payment "of such kind as [has been] prescribed" (section 555(6))? If the answer is "yes", then, second, has the payment "a connection of a prescribed kind with the relevant activity"? If the answer to this question, too, is "yes" then, in my opinion, for section 556(5) purposes, the payment is one to which section 555(2) applies. The identity of the payer is, in my opinion, as a matter of construction of section 555(2), irrelevant to the question.
(3) To imply into section 555(2) a limitation by reference to the foreign status of the payer would, in my opinion, be impermissible. The whole point of sections 555 to 558 is to subject foreign entertainers or sportsmen to a charge to tax on profits on gains obtained in connection with their commercial activities in the United Kingdom. Payments to foreign companies controlled by them are to be treated as payments to them. The infrequent or sporadic nature of their commercial activities and presence in the United Kingdom and the difficulty of collecting from them the section 556 tax on their profits and gains from those activities was one of the reasons why the new collection regime was introduced under the 1988 Act. To read into the statutory provisions a limitation preventing the collection regime from applying where the payer is a foreign entity with no UK presence and thereby relieving the foreign entertainer/sportsman from the charge to tax cannot, in my opinion, possibly be justified on the basis of a presumed legislative intention. I would hold that on the true construction of these sections the territorial limitation cannot be implied and that the statutory language should be given its natural meaning.
18. Accordingly, I would allow this appeal with costs here and below.
LORD WALKER OF GESTINGTHORPE
19. I have the misfortune to differ from your Lordships as to the disposal of this appeal. I have found it a difficult case, and I have hesitated whether to carry my doubts to the point of dissent. But I have in the end formed the definite view that this appeal should be dismissed. I will set out my reasons as briefly as possible.
20. In my opinion the appeal turns on whether or not the well-settled presumption against a statute being construed as having extra-territorial effect (see Ex parte Blain (1879) 12 Ch D 22) is ousted by a sufficient indication that in this case Parliament did intend section 555 (2) of the Income and Corporation Taxes Act 1988 ("ICTA 1988") and its associated provisions (re-enacting provisions originally introduced by section 44 of and Schedule 11 to the Finance Act 1986) to apply to a payment made by a person neither resident nor having any tax presence in the United Kingdom. The Revenue's alternative submission (based on the language of section 556 (5) of ICTA 1988) seems to me over-subtle and insubstantial.
21. When Parliament first enacted these provisions this House had only recently made its important decision in Clark v Oceanic Contractors Inc  2 AC 130. The House was divided as to the result, but it appears that had it not been for the "tax presence" point the Revenue would have lost the appeal (Lord Scarman did not accept the Revenue's alternative argument, though Lord Wilberforce and Lord Roskill found it attractive). Lord Edmund-Davies and Lord Lowry, who dissented, both saw it as a strong thing to give extra-territorial effect to a taxing statute containing penal provisions (that is, penalties for non-compliance with its requirements): see Lord Edmund-Davies at p155 D-G and Lord Lowry at p158 F-G. Lord Scarman, who was in the majority, recognised that the Revenue's position had "far-reaching and anomalous consequences:" see at p146 E-G. Yet it is said that Parliament must be taken to have intended, by the relevant provisions in the Finance Act 1986, to have produced much the same effect as in Clark v Oceanic Contractors Inc, but without the element of any tax presence which was decisive in that case.
22. Before your Lordships Mr Brennan QC (for the Revenue) made some points which I can readily accept. The provisions introduced by the Finance Act 1986 were not simply a collection mechanism. They made substantial changes in the way in which non-resident entertainers and sportsmen were to be charged, in line with what was permitted by Article 17 of the (1977) OECD Model Tax Convention on Income and Capital:
Mr Brennan was right in saying that in this context Buxton LJ's observations about merchant bankers or bricklayers were not apposite.
23. The changes made were, in brief, as follows:
(1) The charge on a non-resident trader under Case 1 of Schedule D (which depends on the existence of "a trade . . . exercised in the United Kingdom": see now ICTA 1988 section 18(1)) was extended (in the case of an entertainer or sportsman meeting the prescribed conditions) by what is now section 556 (1) of ICTA 1988 so as to apply to what was aptly referred to by Mr Brennan as a "deemed trade" in the United Kingdom.
(2) The charge was also widened, in the same type of case, to catch payments made to a person other than the entertainer or sportsman so as to make it a "deemed receipt": section 556 (2).
(3) The basis of assessment was changed to a current year basis: section 557 (1).
(4) There was a machinery for collection of basic rate tax by deduction at source: section 555 (2), which is at the heart of this appeal.
24. Mr Brennan put the collection mechanism last in his list of changes, but the fact is that in the legislation it is put in the most prominent position, and the charging provisions in section 556 and the timing provisions in section 557 are all routed through the collection mechanism so as to apply only when it applies: see sections 556 (5) and 557 (5). Mr Brennan argued that the collection mechanism was a tail which should not be allowed to wag the dog, but he was driven to accept that the dog seems to come on stage tail first.
25. Mr Brennan submitted that it was incredible that Parliament should have intended to make the substance of the new tax charges depend on the reach of the machinery for collecting basic-rate tax by deduction; or that it should have been intended, in establishing that machinery, to draw a distinction between a resident and a non-resident payer. The fundamental statutory purpose, he argued, was to tax economic activity which takes place in the United Kingdom.
26. I have no difficulty with this last submission, but to my mind it does not necessarily lead to the conclusion for which the Revenue contends. I think it is important to bear in mind that these provisions were first introduced twenty years ago, and the facts of economic life for entertainers and sportsmen may have changed during that time. In the 1980s the main mischief, for the Revenue, may have been the ability of an international musician, golfer or tennis player to arrive and spend a fortnight performing in the United Kingdom, collect his or her share of the gate money (or prize money or attendance money derived from the gate) and depart with the money tax-free. What is now section 555(2) compelled the promoters of the concert, or of the golf or tennis tournament (very probably United Kingdom residents, or at the very least, persons with a tax presence in the United Kingdom) to deduct basic rate tax, whether making a payment to the performer personally or to a person connected with the performer. That may have been seen as the principal target, especially as royalties for sound recordings (an important source of income for a successful musician) have always been excluded from the deduction machinery (see Regulation 3(3)(c) of the Income Tax (Entertainers and Sportsmen) Regulations 1987, SI1987 No. 530).
27. It is clear from Mr Agassi's tax computations that his merchandising income (from allowing his name to be used on products which he endorses) far exceeds his income from prize money. But that may not have been true of the generality of entertainers and sportsmen in the 1980s, and it may not be true, even today, of sportsmen whose talent and achievements, although in demand on international circuits, are not as wholly exceptional as those of Mr Agassi. If a relatively unknown tennis player from (say) Taiwan or Thailand receives £5,000 for playing in tournaments in the United Kingdom, it is fair that he or she should be taxed on this. It is income derived from economic activity in the United Kingdom, and the collection mechanism for deduction at source, which binds the United Kingdom tournament organisers, ensures that at least basic-rate tax is paid. It is not so obvious that the player should also have to pay United Kingdom tax on merchandising income paid overseas in respect of products which (because of the player's relatively modest fame) may be marketed only in his or her own country.
28. To put it at the lowest, it is not to my mind glaringly obvious that United Kingdom tax ought to be paid in respect of a non-resident sportsman's merchandising income received overseas from a manufacturer which is not resident (and has no tax presence) in the United Kingdom. But on the Revenue's case it is unthinkable that Parliament should have had any other intention. On the Revenue's case Parliament must have intended that such a manufacturer (which might not be a large multinational, but a small company trading only in Taiwan or Thailand) would be in breach of its statutory duty, and exposed to penalties for breaching United Kingdom regulations of which it might have no knowledge. I am not persuaded that Parliament must have had that intention in enacting the Finance Act 1986 (only a few years after this House had considered the matter so thoroughly in Clark v Oceanic Contractors Inc  2 AC 130). For my part, I would dismiss this appeal.
29. I have had the benefit of reading in draft the judgments prepared in this matter by my noble and learned friends Lord Scott of Foscote and Lord Walker of Gestingthorpe. It seems to me improbable that the legislature had expressly in mind the problem with which the House is now faced. We have to address it in a manner which is faithful to and makes best sense of the general legislative scheme.
30. I see great force in the taxpayer's submission that the collection machinery introduced by section 555(2) of the Income and Corporation Taxes Act 1988 must be read as subject to an implied territorial limitation. I say this having regard to the approach taken and to similar considerations to those mentioned by this House in Clark v. Oceanic Contractors Inc.  2 AC 130. True, the language of section 555(2) is on its face general. Literally read, it applies to any person who makes a payment of a prescribed kind in connection with an activity of a prescribed kind performed by an entertainer or sportsman within the United Kingdom. But it seems to me to be far-reaching and anomalous - to adopt words used by Lord Scarman at p.146F in the different context of PAYE under Schedule E in Clark v. Oceanic Contractors Inc. - to treat section 555(2) as imposing on a foreign payer having no presence here penal obligations to make and account for deductions in respect of the payment it makes. This is all the more so when the payment itself may, as here, be made abroad and be made to a company rather than to the relevant sportsman or entertainer. Any such obligations, if they existed, would quite likely be unknown to and almost certainly be incapable in practice of being enforced against the foreign payer.
31. But that does not to my mind mean that the Revenue's appeal fails. The primary basis upon which the Revenue puts its appeal is that it does not matter whether section 555(2) contains any implied territorial limitation (see e.g. paragraph 23 of its summary submissions). Chapter III of the 1988 Act, containing sections 555 to 557 and consolidating Schedule 11 of the Finance Act 1986, was intended not just to provide improved collection machinery but also to expand the ambit of the basic tax charge under Schedule D imposed by what became section 18(1)(a)(iii) of the 1988 Act. The expansion was to cater for the first three problematic aspects identified by Lord Scott in his paragraph 9. The primary liability for the basic and expanded tax charge rests on the sportsman or entertainer to whom the payment is or is to be treated as being made: see section 18(1)(a)(iii) and sections 555(1) and 556(1) and (2).
32. The legislation could not sensibly have meant or provided that the taxpayer could avoid his expanded liability by the simple means of arranging for any payment to be made to him or his company by a person not present in the United Kingdom. Even if (which I doubt) the possibility of payments in respect of United Kingdom sporting or entertainment activities by persons with no United Kingdom presence is a quite new phenomenon, we must still ask ourselves whether that means that any implied territorial limitation, which should sensibly be read into section 555(2) to cater for that phenomenon, should also sensibly be read as carrying through into the primary tax charge imposed by sections 555(1) and 556(1) and (2).
33. The argument that it does have this anomalous effect is based on the provisions of section 556(5). But point (2) made by Lord Scott in his paragraph 17 answers that argument completely in a manner with which I wholly agree. To recapitulate it in my own words, the second part of section 556(5) gives rise to no issue, since it simply provides for the possibility that the Treasury might wish to make regulations excluding, from the extended tax charge provided by section 556(1) or (2), payments which have a connection with the relevant activity of a kind prescribed as mentioned in section 555(2) and which would otherwise fall within the extended charge. The purpose of the first part of section 556(5) is also easily explicable as being to limit the application of section 556 to payments or transfers with a connection with a relevant activity of a kind prescribed under section 555(2). It is true that section 556(1) and (2) would anyway have been limited to such payments, since they contain similar wording, referring back by implication to the concept of "a prescribed kind with the relevant activity" in section 555(2). But it is in section 555(2) that that concept is first introduced, and duplication or tautology is also nothing new in statutory language. I find it far more implausible to suppose that the legislature had it in mind in section 556(6) to limit the scope of section 556(1) and (2) by reference not simply to the kind of payment, but also by reference to an implied territorial limitation which the courts might (and in my view probably would) read into section 555(2) regarding the type of payer who should sensibly be treated as under the duty imposed by section 555(2) to make and account for deductions. An implied limitation read into section 555(2) for the benefit of overseas payers should not be treated as having an anomalous windfall effect with regard to the primary taxpayer.
34. In short, there is no incongruity about a primary tax charge being levied on a sportsman or entertainer who performs an activity within the United Kingdom and receives or is treated as receiving a payment from whatever source for that activity. But it would be incongruous if a primary tax charge for payment in respect of a United Kingdom activity depended on whether the payment was or was not made by a person present here. The position regarding the liability of the payer of such a payment to make and account for deductions in respect of the basic rate of such tax is quite different. It may, and in my view probably would, be incongruous if a payer without any United Kingdom presence were to be treated as under any liability to make and account for such a deduction. But this conclusion should have and in my view has no bearing on the primary liability of the sportsman or entertainer to pay both the basic and any higher rate tax due in respect of the payment.
35. I note that the effect of this analysis (a distinction between the charge to tax on the taxpayer and the liability of the third party payer to make and account for deductions at the basic rate) is similar to that which the House of Lords in Clark v. Oceanic Contractors Inc.  2 AC 130 accepted would occur under Schedule E, in circumstances where the payer was not present within the United Kingdom (cf p.147F and 148D-E per Lord Scarman).