Diving into Tax Troubles: Diver tests UK-South Africa Double Taxation Treaty

July 11, 2020


3 min read

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What's going on here?

The UK Supreme Court recently ruled that the qualified diver Martin Fowler, who is a South African resident, should pay tax to HMRC on his income made from diving activities in the UK between 2011 and 2013.

What does this mean?

Fowler, a non-UK resident, earnt money diving in the waters of the UK Continental Shelf. Ordinarily his income for this work would be taxed in the UK. However, the UK-South Africa Double Taxation Treaty (DTT) which came into force in 2002, and a peculiar tax provision in the Income Tax Act 2005 related to diving activities left the issue in legally murky waters.

DTTs are designed to prevent instances of double taxation and attempts to avoid or evade taxation.

The UK-South Africa DTT provides that:

Employment status

Pay tax where you work?




Article 7



Article 14

If Fowler was self-employed, his diving income earned in the UK would be exempt from tax in the UK owing to the DTT. In this case, both Fowler and HMRC assumed that the South African diver was an employee and therefore must pay tax where he worked.

However, section 15 of the Income Tax Act 2005 stipulates that:

  • Those who perform “the duties of employment as a diver or diving supervisor in the United Kingdom” are treated as self-employed for domestic tax purposes. 

Fowler argued that, due to the Income Tax Act’s treatment of certain divers, he should be considered self-employed and therefore should not pay tax to HMRC. In cases where a term is not defined by the DTT, they are defined by the relevant national tax law – in this case the Income Tax Act. 

The Supreme Court ruled in HMRC’s favour on the grounds that section 15 does not change the ordinary meaning of UK tax law. This led the Supreme Court to reason that the “deeming provision” – a section or clause that states how something is to be treated – section 15 should be rejected because in reality Fowler’s income was as an employee.  Therefore, the statutory fiction – provisions that result in something being the case that it is not in reality – was, to Fowler’s disappointment, not intended to make a South-African-resident qualified diver “immune from tax in the UK”.

What's the big picture effect?

Statutory fictions can be very fickle. This is reflected by Fowler’s success in convincing the First-tier Tribunal and Court of Appeal of his argument before finally losing out in the Supreme Court. The Court of Appeal proclaimed “there can be no room for doubt” about their ruling, whilst the Supreme Court unanimously ruled the opposite. Why is there such a discrepancy?

The judgment delivered by Lord Briggs underlines the debate over statutory fictions. On the one hand, a “deeming provision” should not lead the courts to follow it to “unjust, absurd or anomalous results”. On the other hand, courts “should not shrink from applying the fiction created by the deeming provision to the consequences which would inevitably flow from the fiction being real”. Fowler’s case would not have produced a particularly “unjust, absurd or anomalous” result.

Fowler v HMRC has highlighted problems in DTTs and UK tax law. It illustrates the power “deeming provisions” have to shape – or even distort – the tax rights in DTTs. A court’s interpretation of national tax laws could lead to DTTs being far from preventing double taxation or tax evasion and avoidance, but rather the causes of extra-taxation or gaps that were not intended by the treaty. Moreover, these “deeming provisions” are common in UK tax law from offshore income to chargeable event gains (income tax on gains from certain life assurance policies when the policy holder dies). Fowler v HMRC gives some answers in the precedent it has set, but the complexity of these issues mean that it is just one light on many deep and murky waters.

Report written by Will Holmes

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