Proposed Changes to Australia's Foreign Investment Framework 18 March 2015

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18 March 2015
Practice Group(s):
Energy &
Infrastructure
Projects and
Transactions
Real Estate,
Investment ,
Development and
Finance
Corporate/M&A
Proposed Changes to Australia's Foreign
Investment Framework
Energy & Infrastructure Projects and Transactions, and Real Estate Alert
By Alex Eastwood and Natasha Augustin
In response to the findings of a recent report on Foreign Investment in Residential Real
Estate (Report) by the House of Representatives Standing Committee on Economics
(Committee), the Commonwealth Government of Australia is proposing a number of
reforms to Australia's foreign investment framework.
The proposed reforms in the Government's Options Paper on Strengthening Australia's
Foreign Investment Framework (Options Paper) include:

the introduction of an application fee for all foreign investment applications

increased enforcement measures particularly in the real estate area, as well as
new civil penalties

increased criminal penalties for foreign investors and third parties who assist
with a breach of the Foreign Acquisitions and Takeovers Act 1989 (Cth) (Act), its
Regulations and Australia's Foreign Investment Policy (together Foreign
Investment Framework or Rules).
Application Fees
Currently there are no fees or charges for foreign investment applications, with the cost
of administering Australia's Foreign Investment Framework funded through consolidated
government revenue. By introducing fees on applications, the Australian Government is
seeking to shift this administration cost from taxpayers to applicants. Under the proposed
fee structure, applications for new business proposals and interests in urban land
(including mining and onshore petroleum tenements) would incur fees of AUD10,000,
with business acquisitions and investment in commercial real estate incurring fees of
AUD25,000. A fee of AUD100,000 would be imposed on business acquisitions that
involve a target with assets greater than AUD1 billion. Urban land is defined as land that
is not Australian rural land and rural land is defined as land used for primary production.
For residential real estate and rural land investment applications, a fee of AUD5,000
would apply for property valued under AUD1 million, with property valued over AUD1
million to incur fees of AUD10,000 increasing in increments of AUD10,000 for each
additional AUD1million in property value.
The proposed fees would be payable before a foreign investment application is
processed and the 30 day statutory time period for Foreign Investment Review Board
(FIRB) assessment would only begin after payment has been received. The Options
Paper has flagged a willingness to avoid applicants paying multiple fees for a single
proposal which may be withdrawn and re-submitted in order to extend the statutory
timeline.
Proposed Changes to Australia's Foreign Investment Framework
Increased Enforcement Measures
Aside from covering the cost of administering Australia's Foreign Investment Framework,
the imposition of fees is also aimed at funding a new compliance and enforcement unit
within the Australian Taxation Office (ATO). This measure seeks to address the
Committee's findings on the lack of investigations into, and enforcement of, Australia's
Foreign Investment Rules.
At present, FIRB undertakes the upfront screening of foreign investment applications with
the decision to block investment proposals made by the Commonwealth Treasury. Under
the proposed changes, the screening process would be supplemented by an
enforcement unit focused on detecting and following up instances of potential noncompliance within the real estate sector by using data from land titles, taxpayer
information and immigration movements. To aid with the detection of breaches of Foreign
Investment Rules, the Government announced that from 1 July 2015, the ATO will start
collecting information on all new foreign investments in agricultural land and will
commence a stocktake of existing agricultural land to establish a foreign ownership
register of agricultural land.
Civil Penalties and Increased Criminal Penalties
To further facilitate the enforcement of Australia's Foreign Investment Rules, the
Government is also considering the introduction of civil pecuniary penalties and
infringement notices. Currently, the only enforcement tools available for breaches of the
Act are divestment orders and criminal penalties. The lower burden of proof for civil
penalties will make it easier for punishment to be pursued. The proposed penalty tiers
are as follows:

Tier 1 infringement notices - AUD10,200 fine (AUD2,040 for individuals) imposed
on those who voluntarily declare their failure to comply with a condition of
approval, make a business acquisition or acquire properties without approval
(where approval would normally have been granted)

Tier 2 infringement notices - AUD51,000 fine (AUD10,200 for individuals) where
the relevant breach is identified through compliance activities.
Maximum civil penalties of AUD212,500 (AUD42,500 for individuals) are proposed
should court action be pursued instead of infringement notices in the context of business
acquisitions.
For real estate transactions, maximum civil penalties equal to the greater of the capital
gain made on divestment of the property, 25% of the purchase price or 25% of the
market value of the property, are suggested for breaches of conditional approvals and
property acquisitions made without approval where approval would normally be granted.
Where approval would normally be granted, maximum civil penalties based on the
greater of 10% of the property's purchase price or market value have been proposed.
Developers are also subject to additional civil penalties, as well as criminal penalties of
AUD85,000 fines and/or imprisonment for breaching advanced off-the-plan certificates.
The Options Paper also included proposals to impose civil penalties on third parties who
assist foreign investors to breach Foreign Investment Rules. The maximum civil penalty
suggested for third parties is a AUD212,500 fine (AUD42,500 for individuals).
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Proposed Changes to Australia's Foreign Investment Framework
Agricultural Reforms
Under the current Foreign Investment Framework, investments by private investors in
rural land are generally subject to the same screening thresholds (AUD252 million as at 1
January 2015) that apply to other foreign acquisitions of Australian companies or
business assets. A higher threshold of AUD1.094 million applies to investments by
private investors from the United States, Chile and New Zealand pursuant to the terms of
free trade agreements (FTAs) made with these nations. However, more recent FTAs
have imposed lower screening thresholds on investments involving rural land. For
example, a AUD50 million screening threshold applies to Singapore and Thailand and a
AUD15 million threshold applies to investments by private investors from Korea, Japan
and China. In response to community concern around foreign investment in the
agricultural industry, the Government has announced that from 1 March 2015, a AUD15
million threshold for rural land will apply to all proposed acquisitions by privately owned
investors from countries that are not subject to FTAs which include higher thresholds for
rural land. This lower threshold means that private foreign investors (except those from
the United States, Chile, New Zealand, Singapore and Thailand) must obtain prior
approval for proposed acquisitions of rural land where the cumulative value of the rural
land owned by the foreign investor (including the proposed purchase) is AUD15 million or
more. The Government has also indicated that it will introduce a new AUD55 million
screening threshold for investments in agribusinesses.
It should be noted that, at present, urban land, including mining and onshore petroleum
tenements, are still subject to foreign investment screening from dollar zero. zero dollars?
Broader Review
The Options Paper also signals a desire to make even more fundamental amendments to
the Foreign Investment Rules, including promoting harmonisation with other legislation,
exploring other enforcement regimes and whether more detailed regulatory guidance is
required to improve investor certainty and confidence. In this way, the Options Paper can
be seen as a first step in a long journey of foreign investment regulatory reform.
Conclusion
With the Government seeking to more closely scrutinise foreign investment applications,
business and foreign investors should carefully consider the application of Australia's
Foreign Investment Rules to future transactions. Submissions on the Options Paper are
due by 20 March 2015.
We would be happy to assist with any responses to the Options Paper and any foreign
investment queries. Please contact us if you require assistance in such matters or are
interested in further details on the proposed changes.
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Proposed Changes to Australia's Foreign Investment Framework
Authors:
Alex Eastwood
[email protected]
+61.8.9216.0987
Natasha Augustin
[email protected]
+61.8.9216.0918
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