TNAG-2599-FCO40-3787-Appointment-of-Chris-Patten-as-new-Governor-of-Hong-Kong--Ap-1992 — Page 6

92. HKCD Go/1

Foreign & Commonwealth

Office

392

27 November 1992

Martin Dinham Esq c/o British Embassy Tokyo

Dear Martia

·

P

''

THE GOVERNOR'S TAX POSITION

16 Ju. 1993

London SWIA 2AH

Telephone: 071-

1

1. I understand you asked, via Mike Waters in Hong Kong, for some further guidance on whether there was an HMG policy on Governors paying income tax locally.

2. We have done some rapid checking today. This letter sets out the results, and my own thoughts on their implications for the Governor. We arranged for you to be sent last night the Prime Minister's statement in the House, and the Treasury briefing on the question of the Queen's decision to pay tax. You will have seen from these that no consideration appears to have been given to the implications for Governors of Dependent Territories. That seems to me to illustrate a key point. Although parallels will no doubt be drawn in political terms between the Queen's tax position and that of the Governor, in real terms there is no link. The Queen has agreed to pay tax on one part of Her assets (Her private investment income). Governors are paid salaries under the terms of a contract and are in a wholly different position.

3.

That said, the facts on Governors and tax are as follows. Where Governors are paid by HMG they pay UK income tax

(examples: Falkland Islands, British Virgin Islands, Anguilla). Governors who are paid by Dependent Territories Governments are governed by the regulations of their Territories. We have not so far been able to find an example of any such Governor who is liable to tax. The Governor of Gibraltar is in the same position as the Governor of Hong Kong (on contract, paid by Gibraltar Government, exempt from tax). The Governors of the Cayman Islands and Bermuda do not pay tax: but neither do their citizens! We have not yet been able to check all the smaller Dependent Territories.

4. My conclusion is that the factors vary in each case, and that the decision on whether or not to accept liability for income tax will have to be case-by-case. I suspect that it will be a question of weighing up the political pressures in Hong Kong and the UK for a change in the Governor's tax arrangements, rather than any consolidated move to rationalise the position in all the Dependent Territories. The closest parallel appears to be between Hong Kong and Gibraltar. here too there are differences: the salary of the Governor of Gibraltar is (I understand) fairly modest, and the tax rate

m.dinham.GEN.JRB.BE