21 Sep 2017

Diver’s income

13 June 2017

CRC v M Fowler, Upper Tribunal (Tax and Chancery Chamber), 30 May 2017

Definition of employment

The taxpayer was resident in South Africa. In 2011-12 and 2012-13, he worked as a qualified diver in the UK continental shelf waters of the North Sea. HMRC said the taxpayer’s earnings constituted income from employment within Art 14 of the South Africa/UK double tax treaty and was therefore chargeable to UK income tax.

The taxpayer said the income was business profits within Art 7. As such it was exempt from UK income tax because he had no permanent establishment in the UK within the meaning of Art 5. Under ITTOIA 2005, s 15, the performance of duties of employment consisting in seabed diving activities is treated as the carrying on of a trade. His alternative case was that, even if he were an employee, the effect of s 15 was to bring his income within Art 7, even if that income was otherwise from employment within Art 14.

This was the preliminary issue before the Upper Tribunal.

The judge said the term defining the scope of Art 14 was ‘employment’ rather than ‘salaries, wages…’. This was for two reasons. First, the taxing right was allocated according to where the employee was resident and where the employment took place. The fruits of that employment played no role in restricting its scope. Second, the catch-all of ‘other similar remuneration’ was intended to ensure that all fruits derived from employment were caught.

ITTOIA 2005, s 15 was not relevant because it related to the definition of employment income which was irrelevant for the purpose of construing the term ‘employment’ in Art 14.

The judge added: ‘I do not necessarily consider that more narrowly drawn “deeming” provisions … would be incapable of supplying … the meaning of “employment” for the purposes of Art 14, even if they deem something that is employment not to be or something is not employment to be employment. It is simply that this case does not arise here.’

HMRC’s appeal was allowed.

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