Court instructs diver to heed UK/SA treaty

A provision in a UK income tax Act treating an employed diver as self-employed did not affect the interpretation of the UK/SA double tax treaty, the UK's Supreme Court has decided. An Out-Law.com report quotes Jake Landman, a tax disputes expert at Pinsent Masons, as saying: ‘The decision is useful in terms of clarifying how terms will be interpreted in a double tax treaty and confirms that when a fiction is created under one of the signatory's tax codes this will sometimes be disregarded so as not to lead to a result which appears contrary to the purpose of the treaty.’ The case concerned Martin Fowler, a South African resident diver who undertook diving engagements in the UK Continental Shelf waters. HMRC claimed that the income he earned from those diving engagements was subject to UK tax, but Fowler claimed that under the terms of the UK/SA double tax treaty it was not taxable in the UK. The treaty provides for employment income to be taxed in the place where it is earned, in this case in the UK, but for the earnings of self-employed persons to be taxed only where they are resident, in Fowler’s case in SA. Fowler claimed that since employed divers operating in UK Continental Shelf waters are treated under UK tax law as if they are self-employed for income tax purposes, he should not be treated as an employee when interpreting the treaty. The Supreme Court noted that since Fowler would probably be treated as an employee by the SA tax authorities, this interpretation would probably mean that Fowler was not taxed anywhere on this income.