The White Paper discusses why foreign investment is important for Australia – from boosting domestic savings to providing capital for economic growth, supports existing jobs, promoting innovation and enhancing Australia’s skill base.
There are four priority areas that the Government will focus on: (1) economic and social infrastructure (2) tourism infrastructure (3) clean energy and (4) innovation, including advanced manufacturing.
We agree with the White Paper that to secure the opportunities emerging in Asia, Australia needs to have in place border controls that do not impose unnecessary barriers to cross-border activity, and that support Australia’s economic integration with the region.
There appears, on the surface, to be no change to the regime that is currently in place. Foreign investment continues to be welcome in Australia.
The White Paper misses an opportunity to settle, an aspect of our foreign investment policy that continues to cause confusion, in particular for Asian investors and that is the definition of a ‘foreign government related entity’.
This was changed earlier this year without explanation. Continuing to not explain such a change is difficult to reconcile with the White Paper’s apparent more welcoming approach to foreign investment and in particular from Asia where there is a significant number of foreign government related investors.
The eagle-eyed reader may have seen on page 200 where the definition of a ‘foreign government related entity’ is footnoted as including “companies or other entities in which foreign governments, their agencies or related entities have more than an aggregate 15 per cent interest.” The word “aggregate” was added earlier this year to the definition. ”.
Although not directly referenced in the White Paper, the changed definition in the Policy gives rise to an inconsistency with the definition of a “foreign person” and “foreign government investor” under the Foreign Acquisitions and Takeovers Act 1975 (FATA). The FATA definitions refer to a “single” 15% ownership interest not “aggregate” and is at odds with the Foreign Investment Policy definition of a foreign government related entity which uses the “aggregate” 15% approach. This can have the odd outcome of an entity not being a foreign person for the FATA, but a foreign government related entity for the Policy. This makes it almost impossible for an Australian organisation to know or understand the exact foreign person interest that is held in them or whether a foreign entity is required to notify under the FATA or the Policy – even FIRB would struggle.
Not having guidance to the changed approach and merely noting the definition in a footnote is not a means of achieving the White Paper’s objective. Rather, the absence of guidance, particularly given the high number of government related entities operating in the Asian region, has the potential to only add to the already deeply held misunderstandings of the Australian regime. And this doesn't help make Australia easy to do business with.
What it means for your business?
The White Paper does not signal any additional change to Australia’s foreign investment regime. It remains important for Australian businesses to be aware when dealing with foreign investors that they have an additional regulatory hurdle to clear, and for foreign investors, Australia continues to welcome foreign investment, but understand the complexities of the triggers for the operation of the regime.