Endorsement Income

• Author: Lionel S. Sobel
• Pages: 349-372

349

CHAPTER 13

Endorsement Income

U.K. Taxation of Endorsement Income of Nonresident Alien

Entertainers

The Agassi Case

The Consequences of the Agassi Case

Issues Not Addressed in the Agassi Case

U.S. Taxation of Endorsement Income of Nonresident Alien

Entertainers

Is There a Tax Treaty?

Does the Treaty Contain an “Artistes and Athletes” Provision?

Is the Nonresident Alien an “Artiste” or “Athlete,” and if So, Was

the Income Received for Entertainment or Athletic Activities?

Was the Endorsement Income Personal Service Income or

Royalties, and if Both, How Is the Income Allocated between

the Two?

If the Endorsement Income Was for Personal Services, Was It

U.S.-Source Income or Foreign-Source Income?

The taxation of endorsement income draws together most of the legal

principles covered in the U.S. domestic taxation part of this book, and

all of the principles in the international taxation part. Income earned

by endorsing goods and services is “income” like any other, for tax

purposes. But it’s necessary to explore one significant tributary of this

topic: the taxation of endorsement income paid abroad to nonresident

aliens by foreign companies. So this chapter looks at the taxation by

other countries of the endorsement income paid to American enter-

tainers by American companies and the taxation by the United States

of the endorsement income paid to nonresident alien entertainers by

foreign companies.

As you no doubt know by now, the United States taxes the U.S.-

source endorsement income of nonresident aliens. Other countries are

entitled to do likewise, and the United Kingdom does.

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350 CHAPTER 13

U.K. Taxation of Endorsement Income

of Nonresident Alien Entertainers

The Agassi Case

The first case to consider whether countries may tax the endorse-

ment income paid abroad to nonresident aliens by foreign companies

was the British case of Agassi v. Robinson (Her Majesty’s Inspector

of Taxes).1 The case concerned the United Kingdom’s taxation of

endorsement income paid in the United States to American ten-

nis pro Andre Agassi by the American companies Nike and Head.

These are the key things you need to know in order to appreciate

the significance of the case:

• Agassi won prize money playing in tournaments in the

United Kingdom, including Wimbledon. He paid U.K. taxes

on those winnings without making a fuss. That income was

not at issue in the case.

• Agassi had endorsement deals with Nike and Head. Those

deals probably paid him bonuses for winning tournaments

and also for wearing Nike clothes and using Head rackets in

tournaments. The public record doesn’t reveal the details of

those endorsement deals. But the record does show that Agassi

reported and paid taxes in the United Kingdom on almost

43,000 pounds (about $70,000) in endorsement income from

Nike and Head. That income also was not at issue in the case.

• Agassi’s endorsement deals also paid him some guaranteed

amount annually, not attributable to any particular tourna-

ment in which he participated.

• Nike and Head are American companies. Neither of them

had a permanent establishment in the United Kingdom, and

Agassi did not have a fixed base there. What’s more, Nike

and Head paid the flat amounts to Agassi in the United

States, not in the United Kingdom. (Technically, the payments

were made to Agassi’s loan-out corporation. But that didn’t

help Agassi’s U.K. tax position, because the U.S.-U.K. tax

treaty has an “income that ‘accrues’ to another” clause, like

1. [2006] UKHL 23.

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