On Friday 5.6.2020, the Government announced major reforms to the Foreign Acquisitions and Takeovers Act 1975. The proposed changes deal with national security risks, strengthening compliance measures, streamlining approval processes and administrative enhancements. There is a specific Tax implication involved in this too.
See below for further details.
The Government will introduce a new national security test which will:
- enable the Treasurer to impose conditions or block any investment by a foreign person on national security grounds regardless of the value of investment;
- require mandatory notification of any proposed investment by a foreign person in a sensitive national security business;
- require mandatory notification where a business or entity owned by a foreign person starts to carry on the activities of a sensitive national security business;
- allow any investment that would not ordinarily require notification to be ‘called in’ for screening on national security grounds;
- allow investors to voluntarily notify to receive investor certainty from ‘call in’ for a particular investment or apply for an investor-specific exemption certificate; and
- allow the Treasurer to impose conditions, vary existing conditions, or, as a last resort, require the divestment of any realised investment which was approved under the FATA where national security risks emerge.
Other key elements of the reform package include:
- stronger and more flexible enforcement options including the expansion of infringement notices and higher civil and criminal penalties; and
- streamline approval for passive investors and investments into non-sensitive businesses.
- Information sharing – The Government will increase the scope of the information sharing provisions under the FATA and the Tax Administration Act 1953 to allow greater sharing of foreign investment information across government agencies to simplify the administration of the foreign investment framework.
The Government insists that this is not just COVID-19 pandemic inspired changes, noting:
Prior to the coronavirus pandemic, several advanced and emerging economies had already introduced changes to their foreign investment screening rules which strengthened the existing powers of governments to scrutinise investment, particularly in sensitive sectors. Like Australia, when making these changes governments have overwhelmingly continued to emphasise the need to balance reform against the well recognised benefits of foreign investment.
OECD research has found that in the two years from 2017 to 2019, nine out of the world’s largest ten economies have modified or introduced new, comprehensive policies to manage acquisition or ownership related risk to essential security interests in response to profound reassessments of risks and vulnerabilities
The Government will release exposure draft legislation for consultation in July, with the reforms scheduled to commence on 1 January 2021.