Finally, after several extensions, the Rural and Regional Affairs and Transport References Committee (“the Committee”) has published an interim report. The final report has again been extended and is now due in late February 2013.
In the wake of media commentary surrounding the sale of Cubbie Station, Australia’s biggest cotton farm to a Chinese consortium, the Committee has published an interim report on foreign investment tax arrangements and the inability of the Foreign Acquisitions and Takeovers Act 1975 (“FATA”) to address perceived tax loopholes.
In the report, the Committee does recognise the significant wealth and job creating benefits that foreign investment can bring to the Australian economy as well as to the continued development of the agricultural sector.
However, having heard from almost 70 witnesses and conducting eight public hearings over the last year, the Committee has repeatedly stated its concern with the ability that foreign investors may have under the FATA to distort Australian agricultural markets and to cumulatively purchase agricultural land without triggering the $244million threshold which requires Foreign Investment Review Board approval.
Also the Committee voices concern that both taxpayers and the Government are losing out on hundreds of millions of dollars’ worth of tax revenue from foreign investment, the Committee outlined six key recommendations in its interim report. Emphasising the need to close perceived tax and transfer pricing loopholes, the Committee has recommended that the Government:
- review current tax arrangements applicable to foreign investments and acquisitions in the agricultural sector;
- review tax exemptions for the non-profit activities for foreign entities, particularly where foreign government entities undertake agricultural production in Australia for humanitarian or food security purposes;
- require non-commercial production from agricultural land and businesses by foreign government entities (including for the purposes of food security), to be undertaken as part of Australian Government foreign aid programs;
- investigate ways of developing more rigorous tax liability arrangements for both government owned and private foreign entities;
- review tax barriers faced by Australian organisations which limit their investment in long-term development projects in Australian agriculture; and
- review the FATA with the aim of developing proposed amendments to address contemporary issues (such as the distinction between ‘rural’ and ‘urban’ land) with foreign investment, particularly in agriculture.
Ultimately, as an interim report, the report does little more than state the current opinion of the Committee and the progress it has made to date. Stating that it “strongly supports fair and commercially orientated foreign investment that creates wealth and jobs in the Australian agricultural sector”, the Committee also continues to be vocal in its support for FATA reform.
The interim report also raises the issue that there continues to be a general lack of information on foreign investment in Australian agriculture, which makes it difficult for the Committee to make strong and suitable recommendations to the Government. In light of this, the Committee’s renewed focus on preventing tax revenue leakage is likely to bolster the Government’s proposal to develop a national register for foreign investment in agricultural land in the near future.
As we have said for some time, it appears likely that there will be a tightening of the foreign investment regime as it applies to rural land and agri-business. The Government and Opposition already support a new register of foreign ownership. The Opposition has suggested a $15 million threshold. The Committee may well recommend an even lower or even no threshold.
The Committee seems to be of the view the current additional scrutiny of and no threshold approach to foreign government related investment is insufficient and we can expect to see the Committee recommending tighter conditions around such investment.
Surprisingly the Committee’s further extension to the time for it to report followed the WA Government’s approval of a private Chinese entity to develop the Ord II plan. Surprising because the Committee seemed unaware of the exemption under the legislation that allows acquisition of land or a business from a State Government. The exemption for business acquisitions has been in place since 1975 and for land since 1989.
The Committee’s final report is due to be published on 27 February 2013.
For a copy of the interim report, please click here.