Senate Standing Committee on Rural and Regional Affairs and Transport has tabled its final report on its review foreign investment in Australian agricultural land and businesses.
Scope of Review
The terms of reference for the review included examining:
- the application of ‘national interest tests’ to acquisitions by foreign interests of agricultural assets and businesses both in Australia and in other countries with similar regimes;
- food security; and
- Government and regulator responsibilities under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA).
The report recommended that an independent review should be commissioned to examine measures that might be implemented to ensure foreign investments in Australian agriculture do not affect Australia’s food security, specifically:
- are on a genuinely commercial basis;
- do not distort capital markets;
- do not distort the trade in agricultural products; and
- compete fairly with Australian Agribusiness.
It was recommended that an agricultural land register be established to monitor foreign investment with no minimum foreign ownership threshold. This would include a review of current ownership of agricultural land on establishment of the register and publishing an annual report on foreign investment / divestment.
It was also proposed that independent modelling be conducted of the potential level of foreign ownership in 20 years time based on current trends.
It was recommended that the Foreign Investment Review Board’s (FIRB) investment review thresholds be changed, relevantly:
- the threshold for private foreign investors to obtain FIRB should be lowered to $15 million;
- once cumulative investment in agricultural land by a private foreign investor (and its associates) reaches $15 million all further purchases, regardless of individual value, should require FIRB approval; and
- any investment of greater than 15% in an agribusiness valued at more than $248 million (indexed) or exceeding $54 million should require approval.
However it was also recommended that the current requirement for all direct investment by foreign government owned investors in agricultural assets (regardless of value) be approved by FIRB should not be changed.
Transparency and Scrutiny of the ‘National Interest Test’
The report made a number of recommendations aimed at improving both scrutiny and transparency with respect to the application of the National Interest Test. Relevantly:
- amending FATA where required to ensure that its requirements are clear to prospective foreign investors and are being evenly applied;
- foreign investment applications should include forensic examination of company structures (possibly including requiring disclosure of complex company structures through to the ultimate owning entity) as well as the relationship between a foreign government’s acquisition strategy (such as food security) and commercial operations;
- increasing the emphasis placed by FIRB to take into account local interests when making an assessment; and
- various definitions within both FATA and Australia's Foreign Investment Policy be updated to more accurately reflect the common understanding of terms such as 'Australian rural land', 'Australian urban land', ‘interests of local economies’ and ‘interests of local communities’
The report recommended implementing more effective compliance mechanisms under FATA including:
- regular auditing of compliance with FIRB approval conditions; and
- introduction of better compliance mechanisms for companies that do not rigorously and continually adhere to the undertakings and conditions of FIRB approval that take into account the severity of the relevant breach.
Protecting and Strengthen Tax Regulations
The report expressed a number of concerns about the use by foreign investors of complex structures to minimise their tax liabilities and recommended that Tax regulations should be reviewed and strengthened where possible to prevent ‘revenue leakage’.
While the proposed thresholds are sure to be debated, the push for greater transparency around the review application process as well as improved information gathering should be welcomed.
Ultimately, as can be expected, the result of the upcoming election is likely to determine whether the recommendations of the report will be adopted and to what extent. Given that the report was prepared by the Coalition members of the Senate committee it seems more likely that its recommendations would be adopted should there be a change of government.