Akash Nawbatt QC and Colm Kelly successful in the Supreme Court

In Fowler v HMRC [2020] UKSC 22, the Supreme Court has handed down judgment allowing HMRC’s appeal.

The appeal concerned the interpretation of the term ‘employment’ in the UK/South Africa Double Taxation Convention (‘DTC’). Mr Fowler was a deep-sea diver who was resident in South Africa, but worked on the UK continental shelf. The DTC provided that if the money he earned in that role was income from employment, then it was taxable in the UK. If the sums earned were business profits then they were taxable in South Africa.

It was assumed, for the purposes of the appeal, that Mr Fowler was engaged under a contract of employment. However, s.15 ITTOIA contains a deeming provision which taxes the employment income of divers as if that income was the profits of a trade. Mr Fowler claimed that as the term ‘employment’ was undefined in the DTC, s.15 altered the UK domestic tax law meaning of ‘employment’ for divers so that for DTC purposes he derived his income from a trade and not employment.

The FTT found in Mr Fowler’s favour that the effect of s.15 was that for DTC purposes the sums he earned were business profits.  The Upper Tribunal reversed that decision concluding that s.15 did not alter the employment source of Mr Fowler’s income for DTC purposes. The Court of Appeal (by a majority) allowed Mr Fowler’s further appeal concluding that the effect of the s.15 deeming provision was to alter the source of the income earned by Mr Fowler.

The Supreme Court unanimously allowed HMRC’s appeal holding that s.15 ITTOIA did not go so far as to change the domestic law meaning of ‘employment’.  It held that the deeming provision was concerned only with how income derived from the diver’s employment was taxed, rather than re-characterising the nature and source of that income.  The judgment emphasises the importance of identifying the purpose of a deeming provision when considering the extent of its effect.

Akash Nawbatt QC and Colm Kelly appeared for HMRC.

The Supreme Court judgment can be accessed here.

Akash Nawbatt QC is a leading silk in tax and employment law specialising in high value complex disputes and advisory work.  He regularly appears in tribunals, the High Court, Court of Appeal and Supreme Court and has also appeared in the Dubai International Financial Centre Courts.

Colm Kelly specialises in Employment, Commercial Litigation, Professional Negligence, Insurance & Reinsurance and Tax. 

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