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New requirements for foreign investment applications aim to stop tax avoidance by multinationals in Australia.

The Federal Government recently announced a range of new requirements with respect to foreign investment applications. This was introduced in order to ensure multinational companies investing in Australia comply with Australian tax laws. The new conditions were announced by Treasurer Scott Morrison and provide both the FIRB and the ATO with a suite of new powers which he believes will help counter multinational tax avoidance in Australia.

In ascertaining whether an application for foreign investment is in the ‘national interest’, the new provisions impose a set of conditions any applicant must meet, including:

  • A requirement to comply with Australia’s taxation laws in relation to the proposed investment and any related transactions, operations or assets, directly or indirectly as a result of the investment.
  • The applicant must use their best endeavours to ensure, and within their powers must ensure, that its associates comply with Australia’s taxation laws in relation to the proposed investment and any related transactions, operations or assets, directly or indirectly.
  • Compliance with information requests from the ATO in relation to the proposed investment
  • 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 laws may potentially apply.
  • Provide the FIRB with an annual report, outlining compliance with the conditions.

Where the applicant is assessed as presenting a ‘significant tax risk’, additional conditions can be imposed. These include entering into an advanced pricing arrangement (APA) with the ATO and providing it with periodic information including a tax payable forecast.

According to the Treasurer’s media release, “a breach of these conditions could result in prosecution, fines and potentially divestment of the asset”. While the measures outlined by the Treasurer are new, in recent years FIRB approvals have been linked to the requirement for foreign owned Australian entities to enter into APAs with the ATO, as a prequel to acceptance of an application. This ATO ‘practice’ has been formulised by the new regulations, which will only apply to new FIRB applications from 22 February 2016.
Viewed alongside the introduction of new transfer pricing laws in Australia, along with the recent country by country reporting regime, these new FIRB regulations send a clear signal to global businesses that the Australian Government will require a new standard of compliance and disclosure in order to ensure that foreign investors adhere to Australia’s stringent transfer pricing provisions on dealings between international related parties.

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