Special rights for companies important for the defence

The Ministry of National Defence prepared a new bill on organising defence tasks executed by entrepreneurs and the programme of economy mobilisation imposing new obligations for companies important for the defence, in return for, among other things, a 10% tax credit on input CIT.

The Ministry wants the new regulations to replace the 15-year old act on organising national defence tasks realised by entrepreneurs. The norms regarding the programme of economy mobilisation (PMG) have been extended, which was previously regulated by only one article of the act. According to the Ministry, currently there are not enough tools to perform the functions connected with PMG.

According to the bill, if a particular company acquired, with the participation of assets of State Treasury, production, delivery, renovation or modernisation capacity with regard to certain products, it will not be permitted to refuse to accept a defence task imposed with an administrative decision, even if it there is no remuneration. The company will also not be able to condition completion of defence tasks on earlier establishment of industrial capacity and transfer of technology.

For evading accepting a defence task, an entrepreneur will face a penalty in the amount of 10 percent of the value of the task. The money is to cover the cost of establishing proper capacity in other company. Evading accepting a defence task will also entail returning the acquired industrial capacity to State Treasury.

The regulations also regard companies in the registry of entrepreneurs of special economic and defence importance. The list is established with a government regulation. Currently, it includes over 180 entities.

According to the bill, the enterprises from the list will have to apply for a permission from the Ministry for actions such as dissolution or liquidation, moving company seat abroad, change of the scope of activity or a sale, lease, donation, change of intended use or winding down exploitation of assets used for completing national defence tasks. The companies will also have to present the Minister information on their situation every six months. It is to entail financial and legal situation of the enterprise, owned licences, production, renovation and modernisation capacity, as well as ownership structure and the persons entitled to represent the company bodies. A detailed scope of information is to be stipulated by a Ministry regulation.

Completing the tasks imposed on the entrepreneurs are to be stated in detail by agreements (performance agreements) concluded with state bodies. Just like today, completion of the tasks will be financed from the state budget. Agreements will stipulate penalties for improper settlement of the money obtained. The bill also includes penalties for company directors – up to 30 days of arrest or a financial penalty. They will be imposed for not completing a decision imposing defence tasks, improper completion of obligations arising from an agreement (performance agreement) and not submitting to or obstructing inspection.

What will businesses get in return? The bill indicates that the entrepreneurs performing national defence and security tasks imposed through a decision “will be granted tax credit on the input company tax established in accordance with current provisions in a lump sum of 10%”. According to the Ministry, this will be “a real and universal incentive” for entrepreneurs to participate in completion of defence tasks.

It was suggested that launching PMG was decided upon by the Prime Minister upon the request of the Head of the Ministry of National Defence agreed upon with the Minister of Finance and the bodies participating in the creation of the programme. It will be possible to launch the programme selectively or in full scope. The bill will need to go through the whole legislation process before it can enter into force, which taking into consideration the “hurry” of the present government may come into force very quickly.