The tennis superstar Andre Agassi won the second set of his legal battle with the UK taxman today in a stunning victory which could cost the Revenue half a billion pounds.
Three appeal judges in London allowed Agassi's challenge to a High Court ruling that foreign showbiz and sports stars on tour in Britain are liable for UK income tax on money earned from overseas product endorsement deals - even if the cash never sees the light of day in this country.
The Court of Appeal ruled that Agassi was not liable to UK tax on income paid by German sportswear makers Nike and Head Sports to his US-based company, Agassi Enterprises Inc, because none of them was resident or had a "tax presence" in Britain.
Inland Revenue lawyers are to petition the House of Lords for leave to appeal.
Agassi's legal team estimated that the Revenue could be faced with having to repay up to half a billion pounds to the multitude of entertainers and sports stars who have toured in Britain since the law at the centre of the case - 1988 Income and Corporation Taxes Act - came into force.
The Revenue would also lose out on tens of millions in the future unless the Law Lords reversed today's decision or Parliament amended the Act.
The 1988 Act contains special provisions regarding foreign entertainers and sports stars who might have only a fleeting physical presence, and no tax presence at all, in this country.
Agassi's appeal was based on his tax liability for the year 1998-99, which the Revenue had assessed at £27,500. He has not yet paid the money because the case is still under revue by the courts.
In the High Court, Mr Justice Lightman said it would be "absurd" to construe the Act so as to allow tax to be avoided by the simple expedient of channelling payments through a foreign company with no presence in the UK.
"If this were the case, the tax would effectively become voluntary," he said.
But Lord Justice Buxton, sitting with Lords Justices Sedley and Jacob, said today that tax was only chargeable on payments made directly to the entertainer or sportsman or made to an associated company by a person with a UK tax presence.
In this case, the money was paid, not to Agassi, but to Agassi Enterprises - a separate legal entity - by two German companies with no UK tax presence.
It might well be that Parliament, if it reviewed the statute, would extend its scope, the judge said.
But as the Act stood, the situation was not "absurd or an invitation to tax evasion" and came nowhere near to providing grounds for disapplying the general principle that UK statutes had no effect in foreign countries.
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