FIA Stewards function as representatives of the tax authority

Budget Cap still remains an interesting issue in Formula One.

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The 31st of July is expected to be a day in which information about the teams that will be awarded the F1 green sticker for successfully meeting the checks on the 2022 cost cap, despite rumors suggesting that two or three teams may not comply. The checks have become extremely thorough, with three funded agents visiting each team for three weeks, conducting interviews with employees without prior notice, and scrutinizing data, including personal computers.

A hot summer awaits F1 as the Budget Cap takes center stage, stirring up memories of last year`s controversies. The Cost Cap Administration, responsible for monitoring financial regulations, has informed teams that they will individually receive the outcome of recent checks on the 2022 balance by July 31. However, rumors of a possible postponement have sparked suspicions. Speculation is rife, reminiscent of the events that led to sanctions against Red Bull and Aston Martin last year. In the absence of official information, speculation thrives.

In some teams, concerns were raised when the FIA issued the TD45 directive, which clarified that any project or intellectual property created outside the F1 group and later imported into the F1 area would be subject to the cost cap. While the concept was already understood, the reiteration aimed to eliminate any ambiguity. The FIA rarely emphasizes regulations unless there is a specific reason to do so. 

Office Inspection with cross-examinations:

The International Federation recognizes the high stakes involved in F1. If any issues arise during the verification process without appropriate sanctions, it could undermine the credibility of the Budget Cap Concept. The FIA has made significant progress in conducting thorough vetting procedures at team premises, with three individuals spending three weeks conducting employee interviews and checking data, including personal computers. 

Teams have confirmed that the FIA has delved deeper into the 2022 budget control procedures compared to the previous year, resembling a meticulous tax audit. The issue of staffing allocation, specifically mentioned in TD45, has been carefully examined each employee declares their work time and location, and the FIA verifies whether the declared work on alternative projects aligns with the actual case.

During unannounced checks, interviews, and inspections of emails and Internet traffic, the area of concern remains somewhat unclear, particularly regarding external suppliers. Each component used in the single-seaters is assigned a unique identification code. Prior to race weekends, teams provide the FIA with a comprehensive list of components they will bring to the track. Technicians from the Federation regularly verify that only declared components are mounted on the single-seaters. While material costs cannot be evaded, the intellectual cost of component design remains unverified. If personnel working on other projects transfer knowledge to the F1 program, it is challenging to trace during checks. Nonetheless, the investigators of the Cost Cap Administration take thorough measures, even seeking information from former team employees. 

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The current situation`s delicacy is evident in the staffing arrangement made by each team for financial control. Mercedes, for instance, has disclosed that its department consists of 46 individuals. Every aspect of the team undergoes a cost-to-performance evaluation. This means that before approving a new technical component or business venture, the relationship between its impact on the team`s finances and the benefits it will bring to the track is carefully considered. 

There is a threshold that must be surpassed otherwise the idea is rejected and returned to the sender. This scenario is unavoidable because the funds allocated for developments serve as a buffer to ensure financial stability. For example, if a team experiences numerous accidents in the first half of the season, exceeding the allocated expenses for spare parts, there is a risk that development cuts will be necessary to stay within the maximum budget limit. 

Over the past two years since the implementation of the financial regulation, teams have reviewed their internal processes to optimize each budget item. Currently, it is challenging to identify a specific sector for significant cost reductions. As an industry expert confided, it is often more feasible to make smaller cuts of 100,000 euros in multiple areas, ultimately achieving the same overall reduction.      

The new financial regulation, set to be implemented in 2026, is currently being worked on by the FIA and the teams. Lessons learned from the first five years of the current financial regulations will be utilized to optimize the next version. This is a significant undertaking as it impacts a large portion of an F1 Team`s activities and all aspects that affect performance. The FIA`s stance on infringements following last year`s controversies will be crucial to observe. Previous instances in the current world championship have shown that fines and reductions in wind tunnel time are minor consequences, highlighting the need for sporting penalties to be clearly defined.   

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