Monday May 9 2016

News Source: Global Disclosures

Focus: Foreign Investment

Type: General

Country: Australia




On 22 February 2016, the Australian Government announced an intention to introduce tax conditions to the clearance of foreign investment proposals, which are deemed to present a possible risk to Australia’s revenue base, to prevent non-compliance with Australian tax laws.

Proposed draft conditions and guidance were released for consultation in early March by the Australian government, and following consideration of the responses provided by the Australian Tax Office, the Treasury and industry representatives, a revised set of conditions were released by the Treasurer on 03 May 2016.

Conditions continue to apply until a termination event occurs.
An applicant will be subject to any tax conditions imposed until a “termination event” occurs. This may include entering into negotiations of an advance pricing arrangement or the obtaining of a private ruling with the ATO within a certain timeframe, to agree reporting requirements for certain transactions (e.g. transfer of pricing rules in Division 815-B of the Income Tax Assessment Act 1997, or anti-avoidance rules Part IVA of the Income Tax Assessment Act 1936).

A termination event is defined as an event where the applicant ceases to:

  • Hold the interest;
  • Control the entity or business; or
  • Carry on the business subject to the tax conditions imposed.
New conditions to advise of actions and termination events
Two new conditions (conditions 7 and 8) have introduced requirements for applicants to notify the Foreign Investment Review Board (FIRB) within 60 days of:
  • taking an action; and / or
  • upon a termination event occurring.
Compliance enforced upon Associates replaced with Entities in its Control Group
The requirement imposed upon applicants to ensure that “associates” complied with the conditions, has been replaced with “entities in its control group”. This has had the effect of reducing the scope of the conditions from applying to any entity that may benefit under a trust, as well as partnerships, joint ventures and other arrangements between unrelated third parties, which were unrelated to the proposed action.
Control has the meaning provided in the Corporations Act 2001. The definition of “entities in its control group” is limited to entities that:
  • control the applicant;
  • are also controlled by an entity that controls the applicant; or 
  • are in control of the applicant.
Information to be provided to the ATO
The revised conditions clarify the scope of the documents to be provided to the ATO, and that the documents are only to be provided in accordance with taxation laws, and not certain documents which the ATO may request.
 
Removal of express conditions relating to transfer pricing and anti-avoidance rules
The requirement in the draft conditions for applicants (and their associates) to notify the ATO if they entered into any material arrangement in connection with an action to which the transfer pricing rules in Division 815-B of the Income Tax Assessment Act 1997 or the anti-avoidance rules Part IVA of the Income Tax Assessment Act 1936 may apply, have been removed.
 
The requirement will however continue to apply where a particular tax risk has been identified and the FIRB has imposed a condition requiring the applicant to engage in good faith to resolve any tax issues in relation to an action.
 
Further general clarification have been provided with respect to several conditions initially proposed in the draft set of conditions. These include clarifying that the previous condition that applicants must generally comply with Australia’s taxation laws, as being complied with when the applicant has taken reasonable care to comply with the relevant taxation laws and has a reasonably arguable position.
 
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