The Duchy of Cornwall - Public Accounts Committee Contents

2  The role of the Treasury

8. The Treasury is required to oversee the Duchy's financial transactions, and to ensure that the Duchy maintains the estate's capital for future beneficiaries. The Duchy can only carry out land transactions over £500,000 if it has received approval from the Treasury.[15]

9. The Duchy is engaged in a range of business activities like other commercial enterprises, with a difference that other businesses are subject to the usual rules on corporation tax and capital gains tax. It was not clear to us whether the Duchy's Crown Exemption from tax in its commercial investments and activities may produce adverse consequences for competitors which do pay these taxes. In the Treasury's view, the Duchy's Crown Exemption from tax did not lead to adverse consequences for other enterprises. The Duchy indicated that it would not be inclined to offer advantageous terms to those with whom it did business as a result of its tax exemptions. This was because the Treasury required the Duchy to operate in a commercial manner, to generate a surplus for The Prince of Wales and maintain the value of the estate. The Duchy felt this would prevent any adverse consequences to competitors.[16]

10. The Treasury highlighted that, as the Duchy always reinvests all capital gains, it would not be required to pay capital gains tax even without its exemption from tax. The Treasury mentioned that the Duchy is in a similar position to property companies, as it suggested they also tend to reinvest the majority of capital gains. The Treasury also explained that The Prince of Wales receives the entire surplus from the Duchy as his income, and that he voluntarily pays income tax on the residual surplus from the Duchy. Therefore, if the Duchy paid corporation tax on the surplus and additionally, The Prince of Wales paid income tax on this surplus, he would effectively be taxed twice.[17]

11. The Treasury told us that, while it looks at whether the Duchy has a commercial approach that will safeguard the capital value of the estate, it does not aim to second-guess the Duchy's strategy. The Treasury outlined its oversight of the Duchy's strategy, which included meetings with the Duchy to consider whether its strategy was commercial, and whether the Duchy was using its property efficiently enough.[18]

12. While the Treasury has a responsibility to oversee the Duchy's financial transactions, and it has to approve the Duchy's transactions over £500,000, it told us that it does not carry out any independent check on the Duchy's contract values, to confirm if the Duchy has agreed a market price for sales or rents. The Treasury's position is to leave the burden of proof with the Duchy. The Treasury admitted that it simply asks the Duchy itself if it is achieving a commercial return, or in some cases asks the Duchy to carry out its own checks or to commission checks and then pass them to the Treasury.[19]

13. The Treasury explained that when it was content with a transaction proposed by the Duchy, it put it forward to the Lord Commissioners to sign into a warrant (these are known as 'Section 11' warrants) which allowed the transaction to take place. However, it was not able to offer us details of any independent scrutiny it had carried out on any proposed transactions. The Treasury stated that it had dialogue with the Duchy before granting approval and that this included asking for proof of an arms-length price. The Treasury confirmed that there had been no occasions when it had declined approval to the Duchy to proceed with a purchase or sale over £500,000, but claimed that, on occasion, its dialogue had resulted in the Duchy carrying out a transaction on different terms from those initially proposed.[20]

14. The Treasury's approvals for the Duchy's sales and purchases over £500,000 ('Section 11' warrants) are not published in the Duchy's accounts. The Duchy told us that it received around 15 Section 11 warrants a year. The Duchy does publish the Treasury's 'Section 7' warrants. It receives a Section 7 warrant when a transaction might not be at market value, or it may not give a commercial return. The Duchy received two Section 7 warrants in 2012-13.[21]

15   'Duchy of Cornwall Financial Statements 2013', June 2013 Back

16   Qq 42-43, 60-63 Back

17   Qq 43-53 Back

18   Qq 120, 228 Back

19   Qq 120-122 Back

20   Qq 123-128 Back

21   Qq 129-132 Back

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Prepared 5 November 2013