The FIA has shared an in-depth detail ranging from inclusions, exclusions, punishments and more of the new Cost Cap to be implemented in F1 from 2021 onward.

After announcing a Budget/Cost Cap when the 2021 F1 regulations were presented last year during the US GP, the details then were withheld as the team at the FIA continued working on the finer details of the content to be made for the teams.

At the World Motor Sport Council meeting on Friday, the draft was finally approved and presented for the public to view of the $175 million (135,912 pounds and 153,792 euros) Cost Cap, which will be implemented from 2021 F1 season onward.

It carries the details of what will be included in the Cost Cap, what will be excluded along with the extent of punishments if teams fail to maintain any of the said rule. Under the new Article 2 – F1 Teams Obligations – of the FIA Financial Regulations, the said amount will also depend and calculated as per the number of races in the season.

Article 2.3 of the Cost Cap states:

The amount of the “Cost Cap” shall be:

(a) in each Full Year Reporting Period up to (and including) the Full Year Reporting Period
ending on 31 December 2023:

(i) in the event that there are 21 Competitions in that Full Year Reporting Period,
US Dollars 175,000,000 (the “Base Cost Cap”); or

(ii) in the event that there are fewer than 21 Competitions in that Full Year Reporting Period, the Base Cost Cap decreased by an amount equivalent to US Dollars 1,000,000 multiplied by “X”, where “X” is equal to 21 minus the number of Competitions taking place in that Full Year Reporting Period; or

(iii) in the event that there are more than 21 Competitions in that Full Year Reporting Period, the Base Cost Cap increased by an amount equivalent to US Dollars 1,000,000 multiplied by “X”, where “X” is equal to the number of Competitions taking place in that Full Year Reporting Period minus 21; and

(b) in the Full Year Reporting Period ending on 31 December 2024 and in each subsequent
Full Year Reporting Period, the amount determined in accordance with Article 2.3(a),
adjusted for Indexation.

Under the same rule, the Article 2.5 to 2.10 details on what is included under Reporting Group:

Reporting Group

2.5 For the purposes of reporting Total Costs of the Reporting Group, an F1 Team’s Reporting Group shall comprise the F1 Team together with, where the F1 Team has incurred less than 95% of the costs of the F1 Activities undertaken by or on behalf of the F1 Team in the Reporting Period, such additional entities within the F1 Team’s Legal Group Structure as are determined in accordance with Article 2.6.

2.6 The additional entities to be included within the Reporting Group where an F1 Team has incurred less than 95% of the costs of the F1 Activities undertaken by or on behalf of that F1 Team in the Reporting Period shall be the entity (other than the F1 Team) within the F1 Team’s Legal Group Structure that incurred the greatest amount of costs of the F1 Activities undertaken by or on behalf of the F1 Team in the Reporting Period, followed (to the extent required) by the entity within the F1 Team’s Legal Group Structure that incurred the next greatest amount of such costs, and so on, until the entities included within the Reporting Group have incurred, in aggregate, 95% or more of the costs of the F1 Activities undertaken by or on behalf of the F1 Team in the Reporting Period.

2.7 In addition to those entities included in the Reporting Group pursuant to Articles 2.5 and 2.6, an F1 Team may elect to include additional entities in its Reporting Group from within its Legal Group Structure which have incurred costs of F1 Activities undertaken on behalf of the F1 Team in the Reporting Period.

2.8 For the purposes of Articles 2.5 to 2.7 (inclusive), the calculation of the costs of F1 Activities undertaken by or on behalf of the F1 Team in the Reporting Period:

(a) shall not include costs Directly Attributable to Marketing Activities;

(b) shall be made having adjusted out any amounts in connection with F1 Activities recharged from one member of the F1 Team’s Legal Group Structure to another.

2.9 No entity shall be included in the Reporting Group of more than one F1 Team. If, but for the provisions of this Article 2.9, an entity would be included in the Reporting Group of more than one F1 Team pursuant to the provisions of Articles 2.5 to 2.8 (inclusive), then that entity shall only be included in the Reporting Group of the F1 Team in respect of which it incurs the greatest amount of costs of F1 Activities, excluding costs Directly Attributable to Marketing Activities.

2.10 In the calculation of Relevant Costs, the costs of any F1 Activities incurred by entities within the F1 Team’s Legal Group Structure but outside its Reporting Group, other than costs Directly Attributable to Marketing Activities undertaken by any such entity, must’ either be:

(a) recharged at Fair Value to a Reporting Group Entity and thereby included within Total
Costs of the Reporting Group; or

(b) included in Relevant Costs at Fair Value by way of an Adjustment to Total Costs of the
Reporting Group, as a Related Party Transaction pursuant to Article 4.1(a)(i).

With all the inclusions made, Article 3 and 4 deals with Exclusions and Adjustments, where the former is of importance as it will decide the punishment course:

3.1 In calculating Relevant Costs, the following costs and amounts within Total Costs of the Reporting Group must be excluded (“Excluded Costs”):

(a) All costs Directly Attributable to Marketing Activities;

(b) All costs of Consideration provided to an F1 Driver, or to a Connected Party of that F1 Driver, in exchange for that F1 Driver providing the services of an F1 Driver to or for the benefit of the F1 Team, together with all travel and accommodation costs in respect of each F1 Driver;

(c) All costs of Consideration provided to an Other Racing Driver, or to a Connected Party of that Other Racing Driver, in exchange for that Other Racing Driver providing the services of an Other Racing Driver to or for the benefit of the F1 Team, together with, all travel and accommodation costs in respect of each Other Racing Driver;

(d) All costs of Consideration provided to the three individuals (other than any individual in respect of whom all costs of Consideration are excluded pursuant to any other sub Article of this Article 3.1) in respect of whom the highest aggregate amount of Consideration has been recognised in Total Costs of the Reporting Group during the Reporting Period (the “Excluded Persons”), or to a Connected Party of any Excluded Person, in each case in exchange for that Excluded Person providing services to or for the benefit of the F1 Team, together with associated employer’s social security contributions and all travel and accommodation costs in respect of each Excluded Person;

(e) All costs Directly Attributable to Heritage Asset Activities;

(f) All Finance Costs;

(g) All Corporate Income Tax;

(h) With respect to Non-F1 Activities:

(i) all costs Directly Attributable to Non-F1 Activities; and

(ii) if the F1 Team can prove to the satisfaction of the Cost Cap Administration that an identifiable portion of the following costs relates to Non-F1 Activities, that portion of those costs:

(A) Consideration provided to, and associated employer’s social security contributions incurred in respect of any Personnel engaged in both F1 Activities and Non-F1 Activities;

(B) electricity, gas and water costs incurred in the course of both F1 Activities and Non-F1 Activities;

(C) lease costs in respect of plant and equipment used in the course of both F1 Activities and Non-F1 Activities; and

(D) costs of parts and consumables, and outsourced services, incurred for the maintenance of an item of plant or equipment used in the course of both F1 Activities and Non-F1 Activities;

(i) All costs Directly Attributable to Human Resources Activities, Finance Activities or Legal Activities;

(j) All Property Costs;

(k) All Employee Bonus Costs, subject to a maximum amount in any Full Year Reporting Period of the lower of:

(i) 20% of the Total Fixed Employee Remuneration; and

(ii) in respect of:

(A) each of the Full Year Reporting Periods ending on 31 December 2021, 31 December 2022 and 31 December 2023, US Dollars 10,000,000; and

(B) the Full Year Reporting Period ending on 31 December 2024 and each subsequent Full Year Reporting Period, US Dollars 10,000,000, adjusted for Indexation, provided that where an F1 Team has a Presentation Currency other than US Dollars the amount calculated pursuant to Article 3.1(k)(ii) shall be converted from US Dollars into the relevant Presentation Currency at the Initial Applicable Rate. For illustrative purposes, the amount calculated pursuant to Article 3.1(k)(ii) in selected Presentation Currencies for the Full Year Reporting Periods referred to in Article 3.1(k)(ii)(A).

(l) The following amounts:

(i) payable to the FIA by an F1 Team in relation to its entry to, and participation in, the Championship taking place in the applicable Reporting Period; and

(ii) payable to the FIA by an F1 Team in relation to the FIA Super Licence of any F1 Driver in respect of the Championship taking place in the applicable Reporting Period; and

(iii) payable to the Commercial Rights Holder to the Championship by an F1 Team pursuant to its acceptance as a signatory to a contract with the Commercial Rights Holder and/or the FIA relating to the F1 Team’s participation in the Championship;

(m) All Financial Penalties in respect of any breach of these Financial Regulations;

(n) All costs of goods and services within the Power Unit Supply Perimeter for use by the F1 Team, up to an amount in any Full Year Reporting Period equal to the applicable maximum price as set out in the Technical Regulations;

(o) All amounts of depreciation, amortisation, impairment loss, and amounts as a result of revaluation or disposal of tangible assets and intangible assets;

(p) All foreign exchange gains and lossesrecognised in profit or loss, whether arising from settlement and/or re-measurement of monetary items denominated in a foreign currency, or otherwise;

(q) Where a Reporting Group Entity is required by applicable laws to pay employer social security contributions, the amount by which such mandatory contributions exceed 15% of the Total Employee Remuneration;

(r) All flight and hotel costs in connection with a Competition or Testing of Current Cars by Personnel;

(s) All costs incurred with a Power Unit supplier that are Directly Attributable to the development, testing and validation of an Alternative Fuel and Oil for use with the Power Unit in F1 Cars of the F1 Team; and

(t) During the Transitional Implementation Period only, all Employee Termination Benefits, and associated employer’s social security contributions.

3.2 If a cost within Total Costs of the Reporting Group is Directly Attributable to any combination of the following activities:

(a) Marketing Activities;

(b) Heritage Asset Activities;

(c) Non-F1 Activities;

(d) Human Resources Activities;

(e) Finance Activities; and

(f) Legal Activities, such cost shall be an Excluded Cost.

The Adjustments article carries further information of what teams can offset and include. The Article 5 explains how the outfits are to report their financial records to the Cost Cap Administration and the Article 6 carries details of how it will be reviwed.

There is also provision for Complaints, which will be looked out by Cost Cap Adjudication Panel – explained under Article 7. The following Article 8 carries all the information regarding Breach which has been further divided, depending on the cases.

Procedural Breach

8.1 A “Procedural Breach” arises when an F1 Team breaches a procedural aspect of these Financial Regulations, except that a Non-Submission Breach, as defined in Article 8.7, does not constitute a Procedural Breach.

8.2 Examples of Procedural Breaches include:

(a) making a Late Submission;

(b) failing to submit Interim Reporting Documentation by the Interim Reporting Deadline;

(c) failing to cooperate with or respond to a written request for information, documentation or clarification from the Cost Cap Administration within the timeframe imposed by the Cost Cap Administration;

(d) delaying, impeding or frustrating the exercise by the Cost Cap Administration of its regulatory function, including an investigation conducted under the Financial Regulations, or any attempt to do so;

(e) submitting Reporting Documentation that is inaccurate, incomplete or misleading;

(f) failing to comply with the terms of an ABA; or

(g) failing to comply with the requirements of Articles 1.8, 1.9 or 1.10.

8.3 In the event the Cost Cap Adjudication Panel determines that an F1 Team has committed a Procedural Breach, the Cost Cap Adjudication Panel shall impose a Financial Penalty, unless the Cost Cap Adjudication Panel determines that sufficient mitigating factors exist to justify taking no further action.

Late and Non-Submission of Full Year Reporting Documentation

8.4 In the event that an F1 Team does not submit the Full Year Reporting Documentation by the Full Year Reporting Deadline (a “Late Submission”), the Cost Cap Administration shall issue a late submission notice (“Late Submission Notice”) to the F1 Team (the “Late Submitting Team”).

8.5 Each Late Submitting Team shall, within 48 hours of receipt of the Late Submission Notice, provide the Cost Cap Administration with a written explanation of the reasons for its Late Submission.

8.6 The Cost Cap Administration may grant the Late Submitting Team an extension to the Full Year Reporting Deadline provided that it is satisfied with the written explanation pursuant to Article 8.5 (the “Extended Reporting Deadline”).

8.7 In the event that a Late Submitting Team:

(a) does not provide a written response to a Late Submission Notice within the specified time;

(b) provides a written response to a Late Submission Notice within the specified time but such response is deemed unsatisfactory by the Cost Cap Administration; or

(c) does not submit the Full Year Reporting Documentation by the Extended Reporting Deadline, the Late Submitting Team shall have committed a Non-Submission Breach and shall be immediately referred to the Cost Cap Adjudication Panel.

8.8 An F1 Team that submits a Subset Cost Cap Reporting Template as part of its Full Year Reporting Documentation when such F1 Team has failed to meet the applicable deadlines in order to use Subset Accounts stipulated by the Cost Cap Administration via a Determination shall have committed a Non-Submission Breach.

8.9 In the event the Cost Cap Adjudication Panel determines that an F1 Team has committed a Non-Submission Breach, the Cost Cap Adjudication Panel shall impose a Constructors’ Championship points deduction in accordance with Article 9.1(c)(i) and additionally may impose a Financial Penalty and/or any other Material Sporting Penalties.

Minor Overspend Breach

8.10 A “Minor Overspend Breach” arises when:

(a) an F1 Team submits its Full Year Reporting Documentation and Relevant Costs reported therein exceed the Cost Cap by less than 5%; or

(b) following the review of an F1 Team’s Full Year Reporting Documentation (including, where applicable, the conclusion of any investigation undertaken by the Cost Cap Administration and/or the Independent Audit Firm appointed by the Cost Cap Administration), the F1 Team’s Relevant Costs have been determined to exceed the Cost Cap by less than 5%.

8.11 In the event the Cost Cap Adjudication Panel determines that an F1 Team has committed a Minor Overspend Breach, the Cost Cap Adjudication Panel may impose a Financial Penalty and/or any Minor Sporting Penalties.

Material Overspend Breach

8.12 A “Material Overspend Breach” arises when:

(a) an F1 Team submits its Full Year Reporting Documentation and Relevant Costs reported therein exceed the Cost Cap by 5% or more; or

(b) following the review of an F1 Team’s Full Year Reporting Documentation (including, where applicable, the conclusion of any investigation undertaken by the Cost Cap Administration and/or the Independent Audit Firm appointed by the Cost Cap
Administration), the F1 Team’s Relevant Costs have been determined to exceed the Cost Cap by 5% or more.

8.13 In the event the Cost Cap Adjudication Panel determines that an F1 Team has committed a Material Overspend Breach, the Cost Cap Adjudication Panel shall impose a Constructors’ Championship points deduction in accordance with Article 9.1(c)(i) and additionally may impose a Financial Penalty and/or any other Material Sporting Penalties.

Aggravating or mitigating factors

8.14 In determining the sanctions appropriate for a particular case, the Cost Cap Adjudication Panel shall take into account any aggravating or mitigating factors.

8.15 Examples of aggravating factors include:

(a) any element of bad faith, dishonesty, wilful concealment or fraud;

(b) multiple breaches of these Financial Regulations in the Reporting Period in question;

(c) breaches of these Financial Regulations in respect of a previous Reporting Period;

(d) quantum of breach of the Cost Cap; and

(e) failure to co-operate with the Cost Cap Administration and/or Independent Audit Firm appointed by the Cost Cap Administration.

8.16 Examples of mitigating factors include:

(a) voluntary disclosure of a breach to the Cost Cap Administration;

(b) track record of compliance with these Financial Regulations in previous Reporting Periods;

(c) unforeseen Force Majeure Events; and

(d) full and unfettered co-operation with the Cost Cap Administration and/or the Independent Audit Firm appointed by the Cost Cap Administration.

9. SANCTIONS FOR BREACH

Sanctions

9.1 The following sanctions may be imposed for breach of these Financial Regulations as set out in Article 8:

(a) A “Financial Penalty”, meaning a fine in an amount to be determined on a case by
case basis.

(b) A “Minor Sporting Penalty”, meaning one or more of the following:

(i) public reprimand;

(ii) deduction of Constructors’ Championship points awarded for the
Championship that took place within the Reporting Period of the breach;

(iii) deduction of Drivers’ Championship points awarded for the Championship that took place within the Reporting Period of the breach;

(iv) suspension from one or more stages of a Competition or Competitions, excluding for the avoidance of doubt the race itself;

(v) limitations on ability to conduct aerodynamic or other Testing; and/or

(vi) reduction of the Cost Cap, provided that the penalty specified in Article 9.1(b)(vi) shall only be applied with respect to the Full Year Reporting Period immediately following the date of the imposition of the sanction (and subsequent Full Year Reporting Periods, where
applicable).

(c) A “Material Sporting Penalty”, meaning one or more of the following:

(i) deduction of Constructors’ Championship points awarded for the Championship that took place within the Reporting Period of the breach;

(ii) deduction of Drivers’ Championship points awarded for the Championship that took place within the Reporting Period of the breach;

(iii) suspension from one or more stages of a Competition or Competitions, excluding for the avoidance of doubt the race itself;

(iv) limitations on the ability to conduct aerodynamic or other Testing;

(v) suspension from an entire Competition or Competitions, including for the avoidance of doubt the race itself;

(vi) exclusion from the Championship; or

(vii) reduction of the Cost Cap, provided that the penalty specified in Article 9.1(c)(vii) shall only be applied with respect to the Full Year Reporting Period immediately following the date of the imposition of the sanction (and subsequent Full Year Reporting Periods, where
applicable).

The whole regulation can be found here: file:///C:/Users/LENOVO/Downloads/2021_formula_1_financial_regulations_-_2020-03-06.pdf

Here’s the rest of decisions from FIA WMSC on F1 2020 and 2021