SECRET
HKA 233/1
SECRET
FM HONG KONG
TO IMMEDIATE FCO
TELNO 1123
OF 231121Z APRIL 92
INFO PRIORITY PEKING, UKREP JLG HONG KONG
124216
MDHIAN 1303
260
TOP COPY Q DIST?
ia
2414
PERSONAL FOR RICKETTS, HKD
254
255
YRTELNOS 678 AND 679: PENSIONS QUESTIONS AND PREPARATIONS FOR
DISCUSSIONS
1. WE ARE CONSIDERING THE PENSIONS QUESTIONS RAISED IN FIRST TUR AND WILL REPLY AS EARLY AS POSSIBLE. OUR COMMENTS ON ISSUES RAISED IN SECOND TUR FOLLOW SERIATIM.
TAX
2. LUMP SUM PAYMENTS UNDER COMPENSATION SCHEMES OR COMMUTED LUMP SUM PENSIONS GRATUITIES ARE NOT TAXABLE IN HONG KONG UNDER EXISTING TAX LEGISLATION PROVIDING THEY ARE PAYABLE AT THE TIME
OF RETIREMENT. INCENTIVE ELEMENTS FOR AN OFFICER CONTINUING IN SERVICE WOULD BE TAXABLE WHETHER PAID LOCALLY OR BY HMG IF THEY ARISE IN THE CONTEXT OF EMPLOYMENT IN HONG KONG. IT WOULD EITHER
BE NECESSARY TO AMEND THE LEGISLATION OR TO GROSS-UP INCENTIVE PAYMENTS FOR TAX. A LEGISLATIVE AMENDMENT MIGHT BE DIFFICULT BUT
WE COULD INVESTIGATE THE POSSIBILITY OF USING THE LIMITED COMPENSATION SCHEME SUPERSESSION PAYMENTS AS A COVER.
ELIMINATION OF DOUBLE BENEFITS.
3. LIMITED COMPENSATION SCHEMES ELSEWHERE WERE NORMALLY SUBSUMED IN HMOCS GENERAL COMPENSATION SCHEMES PRIOR TO THE CHANGE OF SOVEREIGNTY. IF AN OFFICER HAD ALREADY RECEIVED COMPENSATION FOR SUPERSESSION BUT REMAINED IN SERVICE HE WOULD ONLY RECEIVE THE BALANCE OF ANY ADDITIONAL COMPENSATION WHICH MIGHT BE PAYABLE UNDER A GENERAL COMPENSATION SCHEME. THE SAME ARRANGEMENT SHOULD
IN OUR VIEW BE APPLIED TO HONG KONG. THE HMOCS ASSOCIATION WOULD BE UNLIKELY TO CHALLENGE THIS PRINCIPLE: BUT THEY MAY WELL ARGUE STRONGLY THAT THE HMOCS COMPENSATION SCHEME SHOULD BE MORE GENEROUS THAN THE LCS BECAUSE OFFICERS WOULD LOSE THE SECRETARY OF STATE'S PROTECTION IN 1997 AS WELL AS THEIR CAREER PROSPECTS.
THOSE SUPERSEDED PRIOR TO 1997 WOULD AT LEAST RETAIN THE SECRETARY OF STATE'S PROTECTION IN THEIR EXISTING EMPLOYMENT!
UNTIL 1997.
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