I’ve now had a look at the PAC transcript. It doesn’t really seem to add much other than to confirm that the PAC seems to be a little confused over business structures and how they are taxed.
Apart from some interesting digressions into the history of the Duchy, the main thrust of the debate does indeed seem to be this odd idea that anything which does business must be a corporation subject to corporation tax. This seems to be applied both to the Duchy itself, and to the investments it makes.
I really don’t know what the legal status of the Duchy is – as was noted in the hearing it seems to be sui generis – so it’s easiest to see the problem with an LLP. For tax purposes an LLP is clearly and explicitly said not to be a corporation. It is in fact treated as not existing at all, never mind having any corporate identity that might be taxable. Instead, anything the LLP does is treated as being done by the members and taxed in their hands. But the PAC members seem not to be aware of this vital – and to me, as a tax advisor, very simple – fact.
They seem to have a very simplistic view of the tax system. From what I can gather, it comes down to:
– Business is done by corporations, which pay corporation tax;
– Other stuff is done by people, who pay income tax
I don’t think I have time or space here to set out why this is horribly incomplete. But it’s very interesting to get a layman’s view of the tax system – and very worrying that laymen on the PAC can grill people about things they clearly don’t understand. It makes me rather glad I’m following Mike Truman’s advice to Adopt An MP.
It’s also interesting, as I noted before, that the PAC seems to be focusing on what the Duchy doesn’t do, rather than looking at what the Duchy does do and asking whether that is appropriate. Or indeed looking through the consequences of what they are suggesting it ought to do: there was a brief reference by William Nye to the tax being much the same if the Duchy were to be subject to corporation tax and the Prince to then be taxed on dividends from it. It’s not how I’d normally do a due diligence exercise, I have to say.