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Tax boss in hot water over office rental deal

OWNERS of office properties in Košice might get another chance to bid on the leasing of office space to Slovakia’s Tax Directorate if Prime Minister Iveta Radičová carries through on the responses she made to queries about a previously-inked, five-year, €6.6-million rental agreement between a firm owned by a regional official of her own political party, the Slovak Democratic and Christian Union (SDKÚ), and the state’s tax authority.

Miroslav Mikulčík of Slovakia's Tax Directorate.(Source: Sme)

OWNERS of office properties in Košice might get another chance to bid on the leasing of office space to Slovakia’s Tax Directorate if Prime Minister Iveta Radičová carries through on the responses she made to queries about a previously-inked, five-year, €6.6-million rental agreement between a firm owned by a regional official of her own political party, the Slovak Democratic and Christian Union (SDKÚ), and the state’s tax authority.

The leader of the parliamentary opposition, Smer chairman Robert Fico, presented what he called a story of party cronyism when he told the media on April 11 that Slovakia’s Tax Directorate, headed by Miroslav Mikulčík, had signed a contract earlier this year to rent an office building in Košice from Nitra Invest, a firm co-owned by Ondrej Ščurka, the chairman of the SDKÚ branch in Nitra. Fico hinted that some proceeds from the lease might end up in SDKÚ party accounts and called on Finance Minister Ivan Mikloš, who had nominated Mikulčík to the tax office position, to resign.
Mikulčík maintained that the contract with Nitra Invest is fully in line with applicable laws and that the lease will save the state money

Political observers noted, however, that questions of impropriety surrounding the contract have put the SDKÚ in an unfortunate position and are urging the party to leave no questions unanswered. Fair-Play Alliance, a political ethics watchdog, said that the best way to deal with the controversy would be to cancel the contract and start the procurement process again with more transparency.

Three days after Fico made his allegations Radičová requested the director of the Tax Directorate to accept new bids for office space in Košice and added that if a cheaper offer meeting all requirements is submitted the current lease should be cancelled. After meeting Radičová, Mikulčík said he saw no reason to resign because he said all steps taken by the tax authority were legal. He also stated that renting the building from Ščurka’s firm would save the state about €3.5 million in upcoming years.

Zuzana Wienk, the director of Fair-Play Alliance, said that whenever a state contract is signed with a firm or person close to a political party, the deal evokes questions.
“This is a fact that experienced politicians should know,” Wienk told The Slovak Spectator. “Thus, they should do everything to avoid suspicions and be able to prove that the [political] ties in no way affected their decisions.”

Wienk said the Tax Directorate should seek the best and most advantageous offer while being able to prove that it went through a fair and transparent process. She added that based on the information available thus far, the tax office has not shown that it actually searched for the most advantageous offer.

The chairman of SDKÚ, Mikuláš Dzurinda, defended the contract, as quoted by the Sme daily, by asking: “Should a member of SDKÚ be handicapped or discriminated against?” Sme also quoted Radičová as saying: “Do you want to say that the 5,000 members of SDKÚ cannot apply for anything in this society?”

Conflicting versions

Fico said on April 11 that his government had been seeking space for tax offices in Košice and that via a tender it had found a better offer and that an agreement on a future rental was signed with VSH Development in the spring of 2010. Fico added that soon after the new government took power VSH Development was sent a letter notifying it that the state did not have the necessary funds to consummate the lease. Fico charged that Mikulčík then signed the deal with Ščurka’s firm.
“What did they think; that nobody would ever find out?” Fico asked, as quoted by the TASR newswire, adding that Mikloš must have been aware of what was happening and then alleging that 20 percent of the lease amount would end up in SDKÚ’s accounts.

Mikulčík denied Fico’s allegations and stated that the building chosen by his management had been considered as early as in 2008 and that a government committee had selected the offer made by Nitra Invest as the most advantageous at that time.

“Regardless of the results of this committee [decision] the management of the Tax Directorate in 2010 opted for a much more expensive option and signed an obligation with VSH Development,” Mikulčík stated on April 11, as quoted by the SITA newswire.

But Sme reported that it did not find any evidence that Nitra Invest had submitted any official offer in the past and that in March 2008 Nitra Invest did not even own the building in question, which is on Rozvojová Street in Košice.

Wienk told The Slovak Spectator that the information published by Sme seems to indicate that Mikulčík did not tell the truth when he claimed that Nitra Invest had been involved in the competition in 2008.

“It is a very unpleasant issue for the SDKÚ,” Grigorij Mesežnikov, president of the Institute for Public Affairs, told The Slovak Spectator, adding, however, that Fico should have put some facts on the table to support his charge that the SDKÚ would benefit from the rental agreement. “Politically it will be used against the SDKÚ and Smer will keep repeating that this is a story of cronyism, though in its scale it is incomparably smaller than what Fico was handling under his rule.”

Mesežnikov said whether the issue will cause harm to the party will depend on how the SDKÚ explains the controversy to its supporters and to the media as well what steps it takes to answer the questions that have been raised.

“It will be important to come up with a solution, which means not pushing one’s head into the sand but understandably explaining the case and if any wrongdoing emerges, then fixing it,” Mesežnikov told The Slovak Spectator.

Fair-Play Alliance suggested that the best way to proceed in government contracts such as this one is to publicly disclose any potential conflicts of interest on the part of a bidder and the contracting public officials and to take appropriate measures to ensure that the process is fully transparent.

Wienk recommended that the Tax Directorate cancel the contract and go through a public bidding process once again, but this time by “doing it right”.

“Of course, the firm owned by Mr Ščurka has the right to bid as well,” Wienk stated. “However, it must be done in a way that the procurer is able to responsibly avoid suspicions that the [contract] order went to the [business of the] party member only because it is close to the party and that it was disadvantageous.”

Shell firm in Cyprus?

On April 12 Ščurka rejected Fico’s charges of party cronyism and said that the Tax Directorate had chosen the best offer, stating that the building that was leased has air-conditioning and large offices and had been completely renovated.

The ownership structure of Nitra Invest, entered into the Slovak Trade Registry on July 6, 2004, has also been questioned by the media. According to the registry the firm is co-owned by Ščurka and a company based in Limassol, Cyprus with the name TPE Holding I Limited.

In response to the reports that Nitra Invest is co-owned by a Cypriot shell company, Radičová presented a document on April 13 from the Ministry of Economy and Tourism of Cyprus which she said showed that there are no Slovaks involved in TPE Holding I Limited, SITA wrote.

In the past Ščurka was one of the founders of the TA3 news television channel but sold his shares in 2000 to Martin Lengyel, former spokesman for Dzurinda when he was prime minister.

On April 13, Sme reported that the first business Nitra Invest attracted after its establishment in 2004 came from a SDKÚ member, Ferdinand Vítek, the former mayor of Nitra, who tasked Ščurka’s firm with buying property for the Nitra Sever industrial park. Sme added that it found no evidence that Vítek had picked Ščurka’s firm via a tender.

Milan Burda, a Smer MP, subsequently charged that Nitra Invest had sold the property it acquired for the industrial park to investors for a much higher price than its purchase price. Burda opined that Ščurka must have earned between €17 million and €33 million by handling the industrial park property, Sme wrote.

Ščurka rejected these accusations also, stating that anyone could have bought those land plots but no one else had ventured to do so.

He also stated that no political contacts were involved in Nitra Invest getting the business but he did not deny having cooperated on legal affairs with ARON Consulting, a firm which is co-owned by Eleonóra Valentová, the wife of Gabriel Palacka, the SDKÚ’s former treasurer, whose name has been linked to a number of questionable SDKÚ financial transactions dating back to his resignation from cabinet more than a decade ago, TASR reported.

The three other parties in the governing coalition said they expect a thorough explanation of the Košice office lease.

The leader of Freedom and Solidarity (SaS), Richard Sulík, asked that the prime minister take the same approach to the SDKÚ as she took towards his party when questions emerged last year about the so-called Liberal House, an office building which SaS intended to rent to its MPs, who would then have used their state expense allowance to pay their office rent.

“I do not see that there is any direct parallel in the sense that the money would be used for activities of a political party,” said Mesežnikov. “The difference is that the Liberal House would have been a project from which a political party, SaS, would have profited. Even though it was legal, the problem was that state funds would have been used to support a political party.”

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