It is no secret that the Foreign Investment Review Board (FIRB) has increasingly focused its attention on the tax implications of potential foreign investment into Australia and the different ownership structures used by investors. 

Evidence of this new focus was made apparent when former tax commissioner Michael D’Ascenszo was appointed to FIRB in January 2013.

The Government declared its intentions over the weekend with Treasurer Joe Hockey announcing that tax implications of takeovers by foreign companies will become a major part of the national interest test considered by FIRB.

At last weeks’ G20 summit, delegates agreed to revamp global tax rules to crack down on corporate profit shifting.  In a media interview prior to the summit, Mr Hockey said that ‘If you’re advised that an Australian company is a major taxpayer and it is purchased by someone overseas and therefore its tax liability would be reduced domestically to zero, that feeds into a decision about what is contrary to the national interest'.  He went on to state that ‘You’d lose potentially a substantial lick of revenue.  And that does have an impact on the national interest.’

The impact on tax revenue of proposed foreign investment into Australia has always been a factor considered by FIRB in its approval process, so Mr Hockey’s comments do not signal a change to the legislation or Australia’s foreign investment policy.  However his warning signals that this is one area that will now be the subject of significant additional scrutiny. 

This not only increases the risk that certain investment structures will face opposition from FIRB, but it is also likely to increase the level of tax related information required by FIRB at the application stage. 

Key lessons

Foreign investors should be aware of this new focus and, in order to ensure timely approvals from FIRB, applications will need to include sufficient details on the tax implications of the proposed investment to manage government concerns that the deal could reduce revenue.