The pair are said to have been on board John's boat when they came across Cowell's rented liner in St Tropez on the French Riviera.
According to The Sun, Walliams shouted across to Cowell: "I've got something for you."
The comedian then proceeded to bear his bottom at his Britain's Got Talent colleague, followed closely by John.
He then blew a kiss to the music mogul, adding: "Love you Simon."
Cowell's boat was reportedly ten times bigger than John's, but the singer-songwriter is said to have made it clear that his was owned rather than rented.
Sir Elton John recently sued The Times over an article that linked him to a tax avoidance scheme.
Cowell is said to have dismissed chances of returning to the UK X Factor due to the amount of jet lag he would receive.