In February 2016, we provided an outline of the tax reporting conditions for foreign investment approvals announced by then Treasurer, Joe Hockey.1 Since that time, the Treasurer has changed, an election has been called and the conditions have been updated. In this update, we provide an overview of the differences between the revised and original tax conditions.

Case by case consideration

In our previous update, we said it was a big call to suggest that, absent the imposition of the tax conditions, all foreign investment is contrary to Australia’s public interest. Draft guidelines relating to the revised conditions make clear that “the imposition of tax conditions will be considered on a case by case basis”. This is a welcome change and may be particularly relevant where foreign investment approval is sought in relation to internal restructures.

Alignment of conditions with tax law

Another favourable development is that many of the changes operate to align the conditions more closely with the tax law. For example:

  • an applicant will be taken to comply with Australia’s tax laws where it has taken “reasonable care’ and adopts “reasonably arguable positions” (both of which are defined tax terms);
  • the requirement to provide documents and information to the Australian Taxation Office (ATO) is now restricted to situations where such documents or information are required to be provided (in the case of the information held by the applicant), or requested (in the case of information held offshore), in accordance with tax law;
  • the obligation to pay any outstanding tax debts is now subject to any payment or deferral arrangements agreed with the ATO or allowed under its policies and procedures; and
  • the timing for the annual compliance report required to be lodged with the Foreign Investment Review Board (FIRB) is now aligned to the due date for lodgement of the applicant’s tax returns.

Has anything been added?

There is now an extra condition requiring an applicant to advise the FIRB within 60 days of making the acquisition, and again when the applicant ceases to hold the interest, control the entity or carry on an Australian business. This is not a surprising inclusion as we understand one of the concerns the ATO has had with the previous foreign investment approval process is remaining in the dark as to whether the acquisition has proceeded and, if so, whether there has been any disposal of the relevant interest or assets (assuming it does not trigger a new FIRB notification).

Overall assessment

The revised tax conditions are certainly an improvement when compared to the original announcement in February 2016, although will still raise concerns about the costs of compliance, particularly for smaller transactions that may be caught within the foreign investment approval regime. For example, notwithstanding liberalisation of foreign investment under Australia’s recent trade agreements (eg. TPP, ChAFTA, KAFTA and JAEPA) which provide a general business notification threshold of A$1,094 million, transactions above A$252 million still require notification if they are undertaken through an Australian subsidiary, as is often the case.