Ahem.
Back to the topic at hand.
There are 4 possible ways of handling this:
1) 'Collider' takes damage, 'Target' doesn't. This is the way it's handled now. Downside: It's exploitable (barely), it's unrealistic. Upside: You know you've been killed right away (No delay from your FE telling you you're dead)
2) 'Collider' takes damage, 'Target takes damage': Downside, the 'target', which didn't see a collision on his FE, takes damage. He may have manovered to avoid the collision, but he gets screwed instead. Also, the damage to the target shows up a second AFTER the collision
3) Target takes damage, collider doesn't. This is a stupid idea (I'm just throwing it in here for completeness sake)
4) Neither takes damage unless both sides see the collision on their FE:
Downside: Long delay before damage takes effect (since both sides have to tell the server about the damage, then the server has to come back with a 'Yup, the target agrees that was a collision'), occationally you'll fly right through a guy.
Upside: Not gameable, realistic (up to a point), completely fair.
I'd say options 1 & 4 are the only 'workable' and fair solutions.
In the case of 4 we'd all have to live with collisions that took effect a certain time after the fact ('Collider' + 'target' ping time later) Still, this time shouldn't be more than 1 second later, on average.
So it boils down to this: Either one guy might get screwed in a collision, or nobody gets screwed but we have to live with 'late' damage from collisions.