Stronger links between ATO and FIRB announced

Stronger links between ATO and FIRB announced

The Federal Treasurer announcednew requirements will be imposed on foreign investment applications to ensure compliance with Australian tax laws. This follows the overhaul of the foreign investment laws implemented at the end of last year and the Treasurer has stated that the new requirements will add to the ‘already strengthened’ framework. David Morris and Michelle Monteleone shed some light on the new requirements.

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Foreign investment applications

Foreign investment applications will now be subject to a set of standard conditions that must be met in order for an application to be considered to not be against the ‘national interest’. These include a broad condition that investors “must comply with Australia’s taxation laws” in relation to the proposed investment and any transactions, operations or assets in connection with the assets or operations acquired, directly or indirectly, as a result of the investment.

The obligation on the investor is not limited to its own compliance, but also extends to investors ensuring that their ‘associates’ comply with the condition if it is within their powers to do so, or otherwise using their best endeavours to do so. Other conditions include:

  • complying with information requests from the Australian Taxation Office (ATO) in relation to proposed investments
  • advising the ATO if investors enter into any transactions with non-residents to which transfer pricing or anti avoidance measures in respect of Australian tax law may potentially apply
  • the requirement to report to the Foreign Investment Review Board (FIRB) annually on compliance with the conditions.

Additional conditions

Additional conditions may also be imposed on a case-by-case basis where a significant tax risk is identified. Such conditions could involve a requirement that the investor enter into advance pricing arrangements with the ATO or seek pre-transaction rulings.

A failure to meet any of the conditions may result in prosecution, fines and/or the Treasurer ultimately ordering a divestment of Australian assets.

A full list of the standard conditions that are stated to be imposed ‘prospectively’ are set out in Attachment A to the Treasurer’s Press Release.

Given the broad nature and wording of the conditions, it is not clear at this stage how they will be interpreted and applied in practice. In many respects, they raise a number of questions that will need to be considered in greater detail and will require further guidance from the ATO and FIRB. It is understood that FIRB intends to release a guidance note on the conditions shortly.

More than ever before, it is clear that the ATO has a large role to play in the foreign investment application framework. The move to incorporate tax-related compliance as a condition of the Treasurer approving investment applications reinforces the increased importance that tax-related matters have had in the FIRB review process in recent times. Given the breadth of the conditions that may now be imposed, it is essential that foreign investors seek tax and legal advice early in the investment process – particularly in cases where it is likely that the ATO will request further information in relation to the proposal or will expect the investor to obtain pre-transaction rulings or enter into arrangements with the ATO.

We are following up with FIRB and the ATO in relation to the changes. As more guidance becomes available, we will provide further updates.

The KPMG FIRB team is comprised of expert tax advisers and corporate transactional lawyers with extensive experience in handling FIRB applications. Please contact us if you would like any further information or have any questions.

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