The Treasurer announced that the Government will use the foreign investment system to ensure tax compliance and tax transparency by multinational companies when investing in Australia (see our earlier alert here). The potentially onerous conditions extend the scope of Australia’s taxation laws and must be carefully considered as part of any FIRB application process. In particular, they impose significant obligations in relation to the provision of information to the ATO and can require businesses to ensure that their associates comply with certain tax related conditions.

What are the conditions?

The standard and optional conditions are as follows:

  1. The applicant must comply with Australia’s taxation laws in relation to the action, and any transactions, operations or assets in connection with the assets or operations acquired, directly or indirectly, as a result of the action.
  2. The applicant must use their best endeavours to ensure, and within their powers must ensure, that its associates comply with Australia’s taxation laws in relation to the action and any transactions, operations or assets in connection with the assets or operations acquired, directly or indirectly, as a result of the action.
  3. The applicant must provide any documents or information requested by the ATO in connection with the application or potential application of Australia’s taxation laws in relation to the action and any transactions, operations or assets in connection with assets or operations acquired, directly or indirectly, as a result of the action. These documents or information must be provided within the timeframe specified by the ATO.
  4. The applicant must use their best endeavours to ensure, and within their powers must ensure, that its associates provide any documents or informationˆ requested by the ATO in connection with the application or potential application of Australia’s taxation laws in relation to the action and any transactions, operations or assets in connection with assets or operations acquired, directly or indirectly, as a result of the action. These documents or information must be provided within the timeframe specified by the ATO.
  5. The applicant must notify the ATO if it enters or has entered into any material (as defined by the ATO) transaction(s) or other dealing(s) in connection with the action and any material transactions, operations or assets in connection with assets or operations acquired, directly or indirectly, as a result of the action, to which the transfer pricing rules in Division 815-B of the Income Tax Assessment Act 1997 or the anti-avoidance rules in Part IVA of the Income Tax Assessment Act 1936 may potentially apply, where such transactions or dealings have not been previously notified to the Commissioner.
  6. The applicant must use its best endeavours to ensure, and within its powers must ensure, that its associates must notify the ATO if they enter or have entered into any material (as defined by the ATO) transaction(s) or other dealing(s) in connection with the action and any material transactions, operations or assets in connection with assets or operations acquired, directly or indirectly, as a result of the action, to which the transfer pricing rules in Division 815-B of the Income Tax Assessment Act 1997 or the anti-avoidance rules in Part IVA of the Income Tax Assessment Act 1936 may potentially apply, where such transactions, dealings, operations or assets have not been previously notified to the Commissioner.
  7. The applicant must pay any outstanding taxation debt, and must use their best endeavours to ensure, and within their powers must ensure, that its associates pay any outstanding taxation debt, which is due and payable at the time of the proposed action.
  8. The applicant must provide an annual report to the Foreign Investment Review Board on compliance with these conditions. The first report must cover the first 12 month period commencing on the date of this notice. All subsequent reports must cover a 12 month period beginning on each anniversary of the date of this notice. Each report must be provided within 30 days after the end of the 12 month period to which it relates.
  9. The applicant must engage in good faith with the ATO to resolve any tax issues in relation to this transaction and its holding of the investment.
  10. The applicant must provide information as specified by the ATO on a periodic basis including at a minimum a forecast of tax payable.

What should potential foreign investors do?

We have already been assisting a number of clients understand and apply the new measures in the course of live FIRB applications. We appreciate that internal communication of these new conditions is critical to the success of a transaction and can help navigate the process with you. We are also in discussions with various stakeholders to work out practical ways to minimise the burden on foreign investors.