The Consul General at London (Frazer) to the Acting Secretary of State

No. 851

Sir: I have the honor to acknowledge the receipt of the Department’s instruction of October 31, 1933—without file number—enclosing a copy of a communication from the Treasury Department dated October 20th, [Page 29] with reference to the assessment of income tax against employees in Consulates in the United States and in Great Britain.

In a letter dated November 13th the Foreign Office informed the Embassy that the Inland Revenue authorities in this country hold that the reciprocal agreement of last June is concerned merely with the furnishing of information as to salaries paid and did not in any way affect the liability to income tax of British subjects employed in American consulates. They hold, and I am afraid correctly, that in view of the provisions of Section 20 of the Finance Act of 1930, there is no doubt of the liability of such employees to British income tax for the years 1930–31 onwards, so that even though the consuls may not supply information as to salaries paid prior to the fiscal year 1933–34, the employees concerned could not on that account be absolved from their liability for earlier years. The revenue authorities have no power to agree that the ordinary operation of the law, that is the assessment of British subjects employed in consulates, should be set aside, though in cases where any hardship existed they are prepared to agree to the payment of the tax for past years being made in installments.

It will therefore be seen that the revenue authorities in the United States and in this country take substantially the same view and it would appear that we are not in a position to take further steps to protect our British employees from the assessment of income tax for periods before the reciprocal agreement of last June was effected. I cannot refrain from remarking in this connection that the prospect of being compelled to pay income tax for two or three years at this time, coupled with the reduction in salaries and the fall of dollar exchange is, in the case of many employees, nothing less than a catastrophe, and I sincerely hope that arrangements will soon be made to adjust the salaries of our employees in this country to the actual cost of living.

Respectfully yours,

Robert Frazer