TNAG-2685-FCO40-3886-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1993 — Page 173

NIEU

employed by itself. The sole employer of the officers concerned is the government of the dependent territory in which they hold their respective offices.

2) You are right in assuming that the remuneration is subjected only to local Hong Kong income tax and not to any form of UK income tax. However, as you know from our letter to you dated 2 July, which was passed over to the Personal Tax Division for reply, an HMOCS officer returning to the UK from Hong Kong would have to pay UK tax on his terminal leave pay and gratuities as set out in SP18/91. However, Miss Ottewell, Personal Tax Division has suggested a way round this problem, whereby the leave pay is commuted into a lump sum which is paid prior to a return to the UK and the contract is properly terminated before the day UK residency is regained. By this method the employee would not have to pay UK tax on the lump sum payment. Alternatively employees would not be subject to UK tax if they did not return to the UK until their leave had ended. I enclose copies of the correspondence for your information.

3) The compensation scheme in this case would be administered by HMG, not the Hong Kong Government.

4) Compensation is envisaged for the two distinct groups of officers which you mention, but the Hong Kong Government have not yet decided whether to offer members of HMOCS a general right to retire early in 1997 with immediate payment of pension as has been granted in previous territories. Under the compensation proposal being discussed at the moment, officers taking early retirement in 1997 would still receive the compensation instalments (paid over 5-6 years from 1997) but would not receive any interest on those instalments. Those remaining in the territory however to work under the Special Administrative Region Government would be entitled to interest at 5% per annum on the instalments. If the Hong Kong Government do decide to grant a general right to early retirement then this will obviously affect the number of officers remaining in the territory after 1997.