• On Budget night, Foreign Investment Review Board (FIRB) released revised ‘tax conditions’ that may be applied as part of the FIRB approval process
  • The revised tax conditions are a significant improvement to the conditions released by the Treasurer on 22 February 2016, which had created considerable uncertainty


There were plenty of tax measures announced in the Federal Budget on 3 May 2016. However, the announcement by FIRB that the tax conditions released on 22 February 2016 which they proposed to impose on M&A deals were being revised received little attention.1

The new tax conditions are a significant improvement, and should reduce most of the uncertainty and angst that the original tax conditions caused.

The new ‘standard’ tax conditions that may be imposed by FIRB are as follows:

  1. Ongoing compliance with Australia’s tax laws – this obligation is limited to the FIRB 'action', and any transactions, operations or assets in connection with the assets or operations acquired as a result of the action. Importantly, this obligation can now be satisfied if the applicant has a 'reasonably arguable position' (ie, about as likely to be correct as not).
  2. Requirement to provide information to the ATO – this is now limited to information the ATO can request under Australia’s tax laws.
  3. An undertaking to pay outstanding tax debts – it is now explicit that this condition does not apply to '50/50' arrangements that are typically entered into when a taxpayer is in dispute with the ATO.
  4. A notification obligation to FIRB to provide an annual compliance report and within 60 days after a termination event occurring – this report must now be provided by the due date for the tax return (rather than on each 12 month anniversary of FIRB approval).

Obligations are also imposed on the applicant’s 'control group', which links back to the Corporations Act test of control in s.50AA. This is significantly narrower than the tax 'associate' test that had previously existed, and should make it easier to comply with the tax conditions.

Additional tax conditions can still be imposed where particular tax risks are identified:

  1. 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. This may involve entering into negotiation on an Advanced Pricing Arrangement, obtaining a private ruling or notifying of transfer pricing and Part IVA issues. The main change is that the reference to the ATO being able to request that the structure be changed has been removed (but whether this is a substantive change remains to be seen).
  2. The applicant must provide information as specified by the ATO on a periodic basis, including at a minimum a forecast of tax payable.

Other issues

There are a couple of other issues that applicants who have been, or about to go through, the FIRB process should bear in mind:

  • Applicants who had the old tax conditions imposed should ask FIRB to amend the FIRB approval so that the new tax conditions are instead imposed (in our experience, FIRB has been prepared to do this).
  • For joint applicants the question of joint and several liability arises, namely whether an applicant will be in breach of their FIRB tax conditions if its co-applicant has breached one of the tax conditions. Again, FIRB has been prepared to make it clear that joint and several liability does not arise for joint applications.
  • Finally, where FIRB approval is a condition precedent to a transaction, the contract should be carefully considered as to whether a purchaser can still walk away from the transaction if they are unhappy with the tax conditions.

This article was written by Cameron Blackwood, Andrew Hirst and Toby Eggleston, Directors, Greenwoods & Herbert Smith Freehills.