CONFIDENTIAL
The
pays them and in Hong Kong because the income is received by reason of employment there. Inland Revenue has agreed to grant unilateral relief for the Hong Kong tax charged; in other words they pay U.K. tax to the U.K. tax man and the latter settles their Hong Kong tax liability.
A double tax liability would fall on the Hong Kong officer serving in the FCO who was remunerated on the same basis; his U.K. tax liability would however be greatly in excess of his normal Hong Kong liability and unless you could find some way of picking the former up for him his service here would be a rather unattractive and unrewarding financial proposition. I believe you did have sone such arrangement to cater for the U.K. tax liability of your staff posted to the Hong Kong Government Office here before their exemption from U.K. tax was agreed with the Inland Revenue.
These exemption arrangements for Hong Kong- based staff serving the Hong Kong Government in the U.K. and for U.K.-based staff serving H.M.G. in Hong Kong could not, as we see it, be applied to officers serving under the exchange arrangements we have in mind. It would be difficult to argue that the Hong Kong officers in the FCO were serving Hong Kong or that the Diplomatic Service officers in Hong Kong posts were serving H.M.G. (for reasons indicated in (1) above it might in any case be considered undesirable to do so); and I cannot see our respective Inland Revenue authorities agreeing to stretch their administrative discretion (in our case) or legislative provisions (in your case) to cover the situation we are here considering.
8. As I said in the preceding paragraph we are looking further into these points but would welcome any comments you may have in the meantime.
CONFIDENTIAL
(L. Monson)