CO129-589-13 War taxation- exemption and evasion 1-2-1941 - 10-9-1941 — Page 2

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The Acting Governor has sent us this account

of correspondence between the Canadian Government's Commissioner of Immigration resident in Hong Kong and the Hong Kong Government relative to the former's liability to Salaries Tax under the War Revenue Ordinance.

Briefly, the position appears to be that Colonel Doughty is not liable to income tax in Canada, and, therefore, strictly speaking, not entitled to exemption from the Hong Kong Salaries Tax. In 1939, however, he suffered a deduction from his salary equivalent to the payment of Canadian income tax, and furnished proof of this deduction. The Hong Kong authorities were prepared to use their discretion to grant him exemption in respect of his 1940 salary if he would produce similar proof for that year, instead of which he took the line that he had been involved in expense through the evacuation of his wife from Hong Kong, and that until she was brought back at the expense of the Hong Kong Government, he would pay no taxation either to the Hong Kong Government or the Government of Canada. The evacuation issue is a complete red herring, but it is unpleasant to see an official representative of a Dominion Government defying in this manner the policy which the Colonial Government put into effect on the instructions of the Var Cabinet here as being a necessary step in the interests of Imperial strategy in the Far East.

The Hong Kong authorities are obviously reluctant to take legal proceedings against Colonel Doughty because of his official position. He is bluffing, however, and I think his bluff can and should be called, and that we should pass the correspondence to the Dominions Office (Mr. McLeod) and ask whether they would be prepared to send it to the High Commissioner at Ottawa to bring the case to the notice of the Canadian authorities. This will probably mean that Colonel Doughty will be compelled to pay his equivalent deduction from his salary to Canadian income tax and will in effect be exempt from the Hong Kong Jalaries Tax, but in view of their general attitude, the Hong Kong authorities are not likely to object to that. It is the principle with which they are concerned.

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