The Federal Treasurer, the Hon. Scott Morrison, issued a press release on 22 February 2016 announcing new foreign investment approvals will require that applicants comply with a number of conditions as they relate to Australian tax. Scott Farrell, Partner in KPMG's Tax Division, examines the Government's new foreign investment approvals process.
Does this announcement:
In essence, the new conditions are aimed at ensuring that “companies operating in Australia pay tax here on what they earn” and that “investors in Australia pay the ‘right’ amount of tax” (emphasis added). As a proposition, this is something everyone can agree is desirable.
When considering foreign investment applications, “the impact of a foreign investment proposal on Australian tax revenues” has always been relevant. Whilst the FIRB and the Australian Taxation Office (ATO) interaction on these applications has increased, it has always existed. The press release consolidates and formalises this practice.
It is understood that the Treasurer’s announcement is neither intended to fundamentally change the existing approach to the consideration of the impact of investment proposals on Australian tax revenues nor represent a BEPS-related initiative. These measures are meant to formalise and make transparent the framework within which these factors are currently being considered.
To alleviate uncertainty and provide clarity to investors, Treasury is preparing detailed guidance. KPMG is actively liaising with key stakeholders on issues and areas of concern identified to date.
It will assist all parties in adapting to the assessment framework going forward if there is greater transparency around the ATO’s assessment of the overall risk profile associated with a foreign investment proposal. To date these assessments have not been shared with applicants. However, the sharing of risk assessments is already part of the standard ATO approach when reviewing the tax affairs of and transactions entered by Australian taxpayers.
Whilst there is a clearer framework for the assessment of the national interest concerning the impact of a foreign investment proposal on Australian tax revenues, there remains a number of issues to be clarified around the standard conditions to be imposed.