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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