WHAT do chat show hosts Richard and Judy and tennis star Andre Agassi have in common? Probably very little ? except their high earnings. That link, though, has seen these celebrities at the centre of recent tax cases involving the same case law ? but with strikingly different results that could have a far-reaching impact on how the courts interpret statute.
Richard Madeley and Judy Finnigan were in dispute with Revenue & Customs last month as to whether they were ?theatrical artists? for the purposes of claiming tax relief on their agent?s costs.
Their claim for relief arose from a special provision introduced in 1991 after lobbying by Equity, the actors? union. For several years the Government had been attempting to reclassify actors to employed status, with limited effect. A deal was done whereby Equity accepted that its members would be treated as employees provided they were entitled to tax relief for agent?s fees.
Howard Nowlan, the Special Commissioner, hit the headlines with a judgment in which he compared Richard and Judy?s performance with other entertainers. But it may have hidden a much more important point of law. In reaching his decision the commissioner referred to ministerial statements made at the time that the legislation was introduced; his authority stemming from the landmark Pepper v Hart decision of 1993.
John Hart was head of classics at Malvern College. He disputed the local district inspector?s attempt to tax him on the benefit in kind of his son?s subsidised education at the college. Hart argued that he was taxable only on the cost to the school, rather than market value, of his son?s education ? the approach having been made clear from ministerial statements recorded in Hansard at the time. His victory in the House of Lords established the important principle considered by Nowlan in the Richard and Judy case.
But only two weeks earlier, a different interpretation of the principle emerged from the House of Lords? decision on the tax affairs of Andre Agassi. As it happens, the barrister acting for the television presenters, Patrick Way, of Grays Inn Tax Chambers, also represented the tennis player. Way had successfully argued in the Court of Appeal that Agassi should not be subject to tax in the UK on endorsement income paid by Nike and Head, both outside the UK, to Agassi Enterprises based in the US under rules for taxing overseas sportsmen and entertainers. These special rules had been introduced in 1986 to ensure that overseas entertainers paid tax in the UK at source on income generated in the UK even though they may have been physically present in the UK only for a few days at a time. Neither Nike nor Head had a presence in the UK nor did the funds ever pass through the UK.
The Court of Appeal decision in Agassi?s favour was based partly on the territoriality principle established in Clark v Oceanic Contractors Inc, but crucially also on Parliament?s recorded intention that the legislation was limited to taxing UK-source income (such as Wimbledon prize money) but could not cover foreign income of entertainers since UK law could never be wide enough to tax foreign earnings of foreigners.
Agassi lost his case in the House of Lords but with a significant dissenting judgment of Lord Walker of Gestingthorpe, who referred to the territoriality argument in Oceanic Contractors and also made reference to Parliament?s stated intention when introducing the legislation. This contrasts with the majority views of Lord Scott of Foscote and Lord Mance who make relatively little reference to Oceanic Contractors but rely instead on what, in their opinion, is assumed to have been Parliament?s intention. To quote Lord Scott: ?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. This cannot in my opinion have been Parliament?s intention.?
The House of Lords, in effect, reached a decision based not on an actual ministerial statement under the Pepper and Hart principle, but on the basis of their lordships? assumption of Parliament?s intention. In reality, of course, Nike and Head paid endorsement income directly to Agassi Enterprises in the US, not to avoid tax but because there was simply no need to involve the UK in the process. Nevertheless, this is an important judgment that may represent a new basis of legal construction and one that extends the Pepper v Hart principle beyond a reference to ministerial statements available in Hansard to one of assumed ministerial intent.
As tax practitioners we have to grapple with uncertainty in completing clients? self-assessment tax returns and Pepper and Hart represented a mechanism for reducing uncertainty. Regrettably, the Agassi judgment creates greater uncertainty because we now have to deal with assumptions about Parliament?s intentions, rather than those actual intentions as documented. Whatever else this decision does, it will not relieve pressure on the courts.
The author is senior tax partner at Grant Thornton