Australia is a country that presents a multitude of opportunities for the foreign investor, encouraged by a diverse economy ranging from a very large agricultural sector to an increasingly innovative and growing ICT service. In order to attract overseas investors, there are a number of incentives which have come from the government’s foreign investment policy.
As with all the processes and procedures relating to foreign investment, there are a number of tax conditions and issues to understand before receiving FIRB approval.
Australian Tax Office (ATO) tax consult advice and risk ratings
The ATO play a large part in screening prospective foreign investors. They support the Australian Treasurer in making decisions around whether a foreign investment proposal would be in the national interest. They have a dedicated team of professionals who pre-screen potential foreign investments in commercial land applications, residential land and non-sensitive internal reorganisation. This team then coordinate their findings with the ATO Tax Consult area to assist in the Treasury decision making process.
The ATO Tax Consult focuses on giving advice linked to the potential impact of the foreign investment on the government tax revenues, along with the integrity of the federal taxation system. They risk rate each action using the following criteria:
- High which means a very clear risk to integrity of tax system and tax revenue
- Medium which means there may be a risk
- Low which means the ATO haven’t identified significant risk
Alongside each of these risk ratings, the ATO will provide a range of qualitative advice relating to the quality or standard that this foreign investment would bring to the country. For those wanting to maximise the opportunity for a successful application especially in complex or sensitive acquisitions, it is important to discuss the application with experts before submitting it for FIRB approval.
Issues of concern
There are a number of tax issues that will raise a red flag with the ATO and increase the risk rating thereby reducing the success rate of the application. Therefore, it is important to review each section of the foreign investment application in link with the following set of criteria.
- The proposal must be compliant with current and substantive tax law.
- The investor must demonstrate transparency in all dealings with the ATO.
- The investor and their related parties must have a clear track record of tax compliance.
- The investor must show there are no inconsistencies in their proposed tax outcomes in relation to policy intent of tax laws.
- The investor can demonstrate they make the appropriate choice and behaviour in relation to their own tax affairs.
- The investor is not falling foul of the Diverted Profits Tax and general anti- avoidance rule.
- There are no associated or previous behaviours carried out which could impact on the consideration of the proposal; and also
- If the investment falls under the high-risk rating or has areas of concern (these can be discussed more fully with a professional who has expertise in FIRB approval.)
Foreign investors prior transactions
Similar to checking someone’s credit rating, the ATO will take a broad-brush approach to looking at the circumstances around each action and each investor to determine their “investment rating.” They will look at any previous foreign investment to see the taxation impact this had. They look at any pre-existing arrangements that could affect the tax revenue from each proposed action, along with patterns of behaviour from the investor and related parties. This holistic approach also includes looking at any known future actions and plans (including part of all of these that take place offshore) to review how this could impact on tax revenue in the future.
Inability to provide information or documentation
During the application process, all the relevant information that is required can be found in the FIRB Application Checklist. If there are problems in getting some of the details together for the initial application, then it will be routinely requested. Not getting all the information together will lead to a delay and extended review time. If not all of the documentation is provided, the ATO may still be able to risk assess the investment as medium or low but this does depend what the potential risks could be along with imposing additional taxation conditions.
Speak to professionals in your area who can review and support your foreign investment application to increase your chances of success.