8 March, 2016
Recent additions to the foreign investment regulatory framework
What you need to know
- The Government has published a set of standard conditions which will be imposed on all foreign investment approvals. These conditions are set out at the end of this Update.
- The standard conditions are designed to ensure multinational companies investing in Australia pay tax in Australia on their earnings. However the conditions are widely drafted and potentially burdensome. It is hoped that FIRB will provide guidance on the meaning and enforcement of these conditions in due course.
- Current foreign owners of Australian agricultural land must be recorded on the new national agricultural land register by 29 February 2016. Any new interests must be registered within 30 days of purchase.
- The Government has released a consultation paper regarding its proposed implementation of a national register of foreign ownership of water access entitlements.
What you need to do
- The focus of the Government on tax revenue means that all future applications to the Foreign Investment Review Board (FIRB) will need to include substantial information on the likely tax effects of the transaction.
- Include sufficient time in any transaction timetable to properly engage with FIRB (who will liaise with the Australian Taxation Office (ATO)) on these issues, particularly in the coming months while FIRB and industry advisers develop an understanding of the new conditions.
- Foreign investors should obtain legal and tax advice before discussing any of the new conditions with FIRB.
- Foreign investors will need to ensure that they have systems in place to ensure ongoing compliance with the new foreign investment approval conditions.
- Foreign investors need to ensure all existing Australian agricultural land holdings have been registered by 29 February 2016 to avoid penalties.
Tax conditions in summary
The Treasurer has announced that "standard conditions" will be imposed on foreign investment approvals to ensure multinational companies investing in Australia pay tax in Australia on their Australian earnings. The conditions are very broad (a breach may arise from even minor acts) and potentially burdensome. Refer to the end of this Update for the full set of the tax-related conditions.
In essence, the conditions will require compliance with Australian taxation law and with ATO directions to provide information in relation to the investment. Investors must advise the ATO if they are entering into any transactions with non-residents to which transfer pricing or anti avoidance measures of Australian tax law may potentially apply. There is also a condition requiring annual reporting on their compliance with the conditions. Additional conditions may also be applied where a significant tax risk is identified in a particular case. These may include requiring the investor to enter into advance pricing arrangements with or to seek rulings from the ATO or requiring investors to provide periodic forecasts of tax payable or to comply with other directions from the ATO that are specific to their circumstances.
For further information, please contact:
Murray Wheater, Partner, Ashurst
murray.wheater@ashurst.com
