Domestic deeming provisions and double tax treaties: lessons from Tradehold and Fowler

Davidson, Bronwyn

Domestic deeming provisions and double tax treaties: lessons from Tradehold and Fowler

Thesis / Dissertation

2025

Publisher

University of Cape Town

Department

Department of Finance and Tax

Faculty

Faculty of Commerce

Abstract

This thesis examines the complex interaction between domestic deeming provisions in South African domestic tax law and double tax treaties (‘DTTs'), focusing on the legal and interpretative challenges that arise when statutory fictions are applied within an international tax framework. Using a comparative analysis of Commissioner for the South African Revenue Service v Tradehold Ltd (‘Tradehold') and Fowler v HMRC (‘Fowler'), the research investigates whether South African courts' reasoning in Tradehold could have been influenced by the approach taken in Fowler. The thesis explores whether key judicial principles or other factors justify the different outcomes in the cases or if the uncertainties in interpretation highlight the need for more explicit guidance. By assessing the principles governing the application of DTTs where domestic tax law incorporates statutory fictions, this research aims to contribute to a more structured and predictable approach to resolving cross-border tax disputes. Research Methodology: A doctrinal legal research approach is employed, drawing on legislative analysis, case law, and academic commentary. The thesis applies comparative legal analysis to examine the South African and United Kingdom (‘UK') courts' reasoning in Tradehold and Fowler, evaluating how statutory deeming provisions interact with DTT principles. Particular attention is paid to purposive interpretation as applied by the courts, assessing whether South Africa's approach aligns with international best practices. The research also explores broader interpretative frameworks, including the role of the Vienna Convention on the Law of Treaties and Organisation for Economic Co-operation and Development (‘OECD') Model Tax Convention principles, to assess their impact on the resolution of tax treaty disputes. Results and Conclusions The findings illustrate the South African courts in Tradehold adopted an approach that sought to retain the domestic statutory fiction within the DTT provisions, whereas the UK courts in Fowler limited the influence of the domestic deeming provision in favour of treaty autonomy and did not retain the fiction created by the deeming provision. This divergence underscores the absence of a universal standard for interpreting DTT provisions when domestic law incorporates statutory fictions. The analysis highlights the risks of inconsistent application, including double taxation or double non-taxation, which could undermine DTT objectives. This thesis concludes that clearer legislative and judicial frameworks are needed to ensure predictability and equity in tax treaty interpretation. It recommends that South African tax authorities provide more explicit guidance on the treatment of deeming provisions in an international tax context to enhance certainty for taxpayers and tax practitioners alike. To mitigate the inconsistencies highlighted in this thesis, it is recommended that South African Revenue Service issues binding guidance on the interpretation of deeming provisions within the context of DTTs. This could take the form of interpretative notes, similar to the OECD Commentary, which clarify when statutory fictions should be retained under DTTs and when they should not. Additionally, legislative amendments should be considered to ensure alignment between South Africa's domestic framework and international treaty obligations, particularly to prevent scenarios of double non-taxation or unintended fiscal arbitrage.