We understand that the Foreign Investment Review Board (FIRB), which includes a former Commissioner of Taxation, is referring more foreign investment applications to the International Division of the Australian Taxation Office (ATO) for consideration, especially if the transactions involve or relate to “higher risk” or “key” (ie. generally large) taxpayers.
The ATO will examine the risks to Australian revenue, both in relation to the holding of the investment and in respect of a future exit.
Based on our discussions with the ATO, matters that will potentially cause concerns for the ATO are where there are entities in an acquisition structure that are established in tax havens or low tax jurisdictions (such as the Cayman Islands or Luxembourg) or where the application indicates that entities are to be established “in a jurisdiction to be determined”.
Where the acquisition structure is particularly complicated, the ATO will usually ask for further information to be gathered by FIRB. It should be noted that this is separate to any disclosures that may be made by PE groups to satisfy the ATO as to the residency of the underlying investors, as recommended in Taxation Determination TD 2011/25. In some cases, it may lead to tax related conditions being attached to any FIRB approval, such as notifying the ATO prior to any sale.
Further, while information regarding FIRB applications is kept confidential, it appears there is capacity for that information to subsequently be passed on to the compliance arm of the ATO in the event of future tax audits.
Relevantly, the Australian government has announced that the ATO will take over responsibility from FIRB for policing compliance with the foreign acquisition rules relating to agricultural and residential land (in addition to tax compliance).