Fowler – UK Supreme Court finds that deeming an employee to be an independent contractor did not oust the Treaty Employment-Income Article

A U.K. domestic income tax provision deemed the diving activities of a South African resident in the North Sea to be the carrying on of a U.K trade, notwithstanding that in fact he was an employee. A majority of the Court of Appeal of England and Wales found that this meant that his earnings were business profits for purposes of Art. 7 of the U.K-South Africa Treaty (rather than employment income under Art. 14) so that they escaped U.K. taxation (as he had no U.K. permanent establishment.)

In reversing this decision, Lord Briggs stated:

Nothing in the Treaty requires articles 7 and 14 to be applied to the fictional, deemed world which may be created by UK income tax legislation. Rather they are to be applied to the real world, unless the effect of article 3(2) is that a deeming provision alters the meaning which relevant terms of the Treaty would otherwise have.

He noted that the UK domestic deeming provision instead only had a limited purpose, which was to give the diver access to more generous deductions from income, and stated that to apply this limited “deeming provision … so as to alter the meaning of terms in the Treaty with the result of rendering a qualifying diver immune from UK taxation would be contrary to its purpose.”

Neal Armstrong. Summary of Fowler v Commissioners for Her Majesty’s Revenue and Customs [2020] UKSC 22 under Treaties – Income Tax Conventions - Art. 3 and Statutory Interpetation – Interpretation Provisions.