The Foreign Investment Review Board (FIRB) says the 2016-17 Federal Budget makes important protections to the integrity of Australia’s tax base, designed to ensure that all individuals and businesses pay the right amount of tax.

Following the Treasurer’s 22 February 2016 announcement that standard tax conditions would be applied to foreign investment approvals, there have been consultations between Treasury, the ATO and industry to discuss the practical application of these conditions.

Following these consultations, FIRB said the Treasurer released on 3 May 2016 a revised set of 8 conditions that effectively target those foreign investments that pose a risk to Australia’s revenue and to make clear the requirements and expectations for investors.

[FIRB announcement on website] [LTN 85, 5/5/16]

TAXATION CONDITIONS OF CERTAIN NO OBJECTION DECISIONS

A. CONDITIONS THAT MAY APPLY UNTIL A TERMINATION EVENT* OCCURS:

*For the purposes of these conditions a termination event occurs:

(a)  when the applicant ceases to hold the interest the acquisition of which was the subject of the no objection notification;

(b)  when the applicant ceases to control, as defined in the Foreign Acquisitions and Takeovers Act 1975, the entity or business the control of which was the subject of the no objection notification;

(c)  when the applicant ceases to carry on an Australian business the starting of which was the subject of the no objection notification.

1.    The applicant must comply with the taxation laws of the Commonwealth of Australia in relation to the action, and any transactions, operations or assets in connection with the assets or operations acquired as a result of the action. An applicant does not breach this condition if it has taken reasonable care to comply with the relevant taxation laws and has a reasonably arguable position.
2.    The applicant must use its best endeavours to ensure, and within its powers must ensure, that entities in its control group** comply with the taxation laws of the Commonwealth of Australia in relation to the action and any transactions, operations or assets in connection with the assets or operations acquired as a result of the action. An applicant does not breach this condition if entities in its control group have taken reasonable care to comply with the relevant taxation laws and have a reasonably arguable position.

**For the purposes of these conditions, an applicant’s control group consists of entities:

(a)  that control the applicant (a controller);

(b)  that a controller controls;

(c)  that the applicant controls, which includes for the purposes of these conditions an entity

that is the subject of the application;

For the purposes of determining a control group, control has the meaning in section 50AA of the Corporations Act 2001.

3.    The applicant must provide any documents or information*** that is required to be provided to the Australian Taxation Office (ATO) in accordance with the taxation laws of the Commonwealth of Australia in relation to the action and any transactions, operations or assets in connection with assets or operations acquired as a result of the action. These documents or information must be provided within the timeframe specified by the ATO.

*** This includes documents or information held, possessed or stored outside Australia.

4.    The applicant must use its best endeavours to ensure, and within its powers must ensure, that entities in its control group provide any documents or information requested by the ATO in accordance with the taxation laws of the Commonwealth of Australia in relation to the action and any transactions, operations or assets in connection with assets or operations acquired as a result of the action. These documents or information must be provided within the timeframe specified by the ATO.

5.    The applicant must pay its outstanding taxation debt under the taxation laws of the Commonwealth of Australia, and must use its best endeavours to ensure, and within its powers must ensure, that entities in its control group pay any outstanding taxation debt under the taxation laws of the Commonwealth of Australia, which is due and payable at the time of the proposed action. This condition does not apply to payment arrangements agreed with the ATO or where the ATO has exercised its discretion to defer part or all of the payment of a disputed amount, to the extent that those arrangements are complied with.

6.    The applicant must provide an annual report to the Foreign Investment Review Board on compliance with these conditions. The first report must cover the period from the date the action takes place to the end of the applicant’s income year for tax purposes. All subsequent reports must cover the applicant’s income year for tax purposes. If the action takes place less than 90 days before the end of the first income year, then that period can be incorporated in the next report. Each report must be provided by the due date for lodgement of the applicant’s tax return for that year.

7.    The applicant must advise the Foreign Investment Review Board within 60 days of taking the action that it has done so.
8.    The applicant must advise the Foreign Investment Review Board within 60 days of a termination event that the event has taken place.

B. POSSIBLE ADDITIONAL CONDITIONS FOR CASES WHERE A PARTICULAR TAX RISK IS IDENTIFIED

  1. The applicant must engage in good faith with the ATO to resolve any tax issues in relation to this transaction and its holding of the investment.†

Depending on the issues raised by the ATO this might include entering into the negotiation of an advance pricing arrangement or the obtaining of a private ruling with the ATO within a certain timeframe, the reporting of information as requested on certain transactions, for example, relating to the transfer pricing rules in Division 815-B of the Income Tax Assessment Act 1997, or the anti-avoidance rules in Part IVA of the Income Tax Assessment Act 1936. The relevant requirements would be included and tailored as appropriate in each case.

  1. The applicant must provide information as specified by the ATO on a periodic basis including at a minimum a forecast of tax payable.††

††This could include a requirement to advise the ATO, and provide an explanation, of significant variations from the forecast of tax payable.

[New FIRB conditions]