Auditing operation No. 03/30
State Budget funds spent for providing the investment incentives
The auditing operation was included in the Annual Audit Plan of the Supreme Audit Office (hereinafter referred to as „SAO“) for the year 2003 under No. 03/30. The auditing operation was managed and audit conclusion drawn up by Ms. Zdeňka Profeldová, the Member of the SAO.
The aim of the audit was to examine the management with the State Budget funds spent for providing the investment incentives in the period before the Act No. 72/2000 Coll., „on investment invitations and amending some Acts“, came into force, including the justifiability of their expenditure and the fulfilment of the conditions for their provision.
The audited period covered the years 1998 to 2003.
The audited bodies were the Ministry of Industry and Trade (hereinafter referred to as „MIT“), the Ministry of Labour and Social Affairs (hereinafter referred to as „MLSA“) and selected beneficiaries of the provided investment incentives.
Before the Act No. 72/2000 Coll. came into force, investment incentives were provided on the basis of government decree No. 298; this process has not yet been discontinued and continues pursuant to the concluded Declarations of Common Intent.
The Investment Incentives Manual, as the basic document by which both the providers and applicants for investment incentives abided, does not contain the basic requisites proving its validity. The Investment Incentives Manual primarily deviated from government decree No. 298 with the tax investment incentives, when the change in the form of the investment invitation from the postponement and subsequent remission of tax debt to the selective grant for income tax burdened the State Budget by an amount of 779 million CZK, which was transferred to the municipalities and regions pursuant to the Act on the budgetary determination of taxes. The Manual also deviated from government decree No. 298 in the case of the specification of the conditions for providing interest-free loans for the retraining of employees in that it contained the concept of training which is regulated by the Act No. 65/1965 Coll., the labour code, and the expenses for it is covered by the employer.
Both government decree No. 298 and the Investment Invitation Manual assess the providing of interest-free loans, which will be converted to a grant after the specified conditions will be fulfilled. Neither the Act No. 576 /1990 Coll. nor the Act No. 218/2000 Coll. contain this legal term. The State Budget funds in the amount of CZK 1 352 million were thus provided solely on the basis of a government decree and not on the basis of a law.
The providing of tax investment incentives was not bound to a company’s specified minimum period of doing business in the Czech Republic and to the fulfilment of conditions for providing other investment incentives. Therefore it occurred that a company that did not fulfil the conditions for investment incentives for the retraining of employees and returned the amount provided, drew on a selective grant for the income tax amounting to CZK 99 219 thousand in two taxation periods anyway. In addition, this company discontinued production on 31 December 2002 and moved its machines and equipment including technology out of the territory of the republic.
Some companies did not fulfil their obligation specified in the Declaration of Common Intent to use all possibilities to decrease the income tax base. Thus the tax base was increased by at least CZK 2 513 thousand. In other detected cases companies filed claims for selective grants for income tax that were CZK 1 007 thousand higher than what they were entitled to.
The level of the provided interest-free loans for establishing new employment positions exceeded the amount that it was possible to provide according to the Manual by CZK 62 350 thousand.
Funds in the amount of CZK 74 200 thousand were provided from the State Budget in budgetary years other than those specified by the government.