TNAG-2689-FCO40-3891-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1993 — Page 12

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compensation the acceptability of the compensation scheme and the

But the Revenue are not package as a whole may be undermined. prepared to consider amending the legislation to exempt Hong Kong HMOCS from tax as this would leave them open to criticism by Parliament that public servants were being accorded more favourable tax treatment than those in the private sector. possible solution would be for HMG to pass the compensation payments to HKG and ask HKG to act as its agent in paying the compensation to the officers concerned (thus replicating the practice in previous cases). The Revenue have told us informally that they could accept this arrangement, although it would mean that the compensation would have to be paid to the officers as one lump sum before 30 June 1997. We would be grateful for your views on whether this arrangement would present you with any difficulties before we consider whether to broach the matter with the Treasury.

6.

We note Peking's comments on how the Chinese side may react to notification of our plans for HMOCS members. A further angle occurs to us. As we see it, neither the compensation payments nor the pension safeguard could be construed as an encouragement to officers to leave before 1997. However, we think it possible that a number of officers (particularly the younger ones?), may decide to opt for early retirement rather than take the chance of staying on. The best way of encouraging such officers to stay would be for the Chinese side to agree to allow the early retirement provision to extend beyond 30 June 1997. If the Chinese display any concern about a large exodus of HMOCS officers in the run-up to 1997, you may wish to consider whether, and if so when, to deploy the argument (above) on extending early retirement beyond 1997. (We recognise the disadvantage of this idea is that it could lead to requests from local officers for a comparable right to retire, which we imagine would not attract the Chinese side).

7. On timing for the consultations with the HMOCS Association, we do not see any problem with a date later in January. However, we can only fix the dates once we have an indication from the Treasury of how long it will take them to examine the schemes and whether they are likely to have any difficulties with them.

HURD