July 22, 2024

Major changes to Australia’s Foreign Investment Review regime announced

Australia’s Federal Treasurer, Jim Chalmers, has announced major changes to Australia’s foreign investment regime designed to safeguard economic and national security. Overseas investors with a proven track are set to benefit from accelerated approvals, whilst others can expect more scrutiny when investing in sensitive industries.

The changes are being driven by ‘national security concerns’ and the Australian government’s new ‘Future Made in Australia’ policy. The revamp is designed to protect the government’s oversight over sensitive industries, such as supply chains, critical infrastructure, data and critical minerals, while streamlining applications in non-sensitive sectors from known investors with a good compliance record.

Key highlights of the changes:

  • Application process:
    • More resources will be dedicated to screening foreign investment in sensitive industries, including supply chains, critical infrastructure, data and critical minerals – as well as investments ‘close to’ defence sites and ‘sensitive Australian Government facilities’. Investments in proximity to defence sites (and not directly on defence land, for example) have always been a grey area and subject to ‘future guidance’. This now appears to be on the government’s radar. Applications in these types of investment will be scrutinised “to ensure all risks are identified, understood, and can be managed”. This likely means longer assessment times and new and potentially more onerous conditions.
    • Specific jurisdictions being targeted were not mentioned, and the Treasurer noted that what the government is focused on is the industry, the structure of the transaction and who is investing – and this applies across the board.
    • Applications from investors that are ‘low-risk’ – including those with a good compliance record, and known entities such as pension funds – will be subject to shorter approval times and lower ongoing compliance costs (which we assume means less conditionality being applied to those approvals). Treasury have set a target of processing 50% of cases within the initial statutory timeframe of 30 days from 1 January 2025. As this almost never happens now, this is an ambitious target – which, in our view, will only work if significantly more resources are dedicated to Treasury.
    • Such investors that are active in the market and make FIRB applications on a routine basis may also be subject to less paperwork where the upstream ownership structure of the investor remains the same.
    • These changes follow recent announcements on the changes to Australia’s merger control system, and from 1 January 2026, the Australian Competition and Consumer Commission (ACCC) has said that information provided to the ACCC on competition issues by foreign merger proponents will mostly be sufficient for the consideration of competition issues under the foreign investment framework.
    • The Treasurer suggested that by streamlining the ‘non-sensitive’ part of the FIRB regime, this will allow FIRB to focus on more complicated projects, including looking at past projects, including those previously approved by FIRB.
    • In a new move, the Treasurer has also pledged to refund filing fees to unsuccessful bidders in a competitive transaction, seeking to ‘encourage competition’ among investors – currently, credit notes are granted, but only in certain circumstances.
  • Conditions: There has recently been a much greater focus by the ATO through the FIRB approval process on investors’ tax arrangements – in particular fund structures – and this is set to continue with greater focus (and scrutiny) of overly-complicated tax structuring and arrangements – which will continue to result in non-standard tax conditions. This can impact the analysis of whether a voluntary filing is recommended or applied for (see below regarding the “call-in” power), because the risk of tax conditions being applied to a transaction is increased, and this may also impact the overall tax analysis for a transaction, which in some cases can be the determinative factor of whether mandatory FIRB approval is required or not. The government is proposed to release updated guidance on this, including to ensure that foreign investors “pay their fair share of tax”.
  • Compliance: The government has committed to expanding FIRB’s compliance team to ensure better monitoring and enforcement of conditions imposed on investments as part of the FIRB approval process. This will include greater usage of on-site visits, potentially not only by FIRB compliance officers, but officers from other government departments.

The Treasurer has also proposed changes to “beef-up” the government’s power to “call in” a transaction in the 10 years after it has completed, if FIRB approval was not obtained because it was not mandatory at the time. He was quoted in local media as saying, “No investment stays exactly the same over a long period of time” and “…any normal self-respecting country like Australia should have the ability to go back into those deals, if that’s necessary”. This may be cause of some concern around sovereign risk and deal certainty, especially in the sectors noted above, and is likely to mean that investors (and their advisors) may err more on the side of caution and seek or recommend voluntary FIRB approval even if mandatory FIRB approval is not strictly required – noting the risk of tax and other conditions being applied to a transaction in such circumstances.

White & Case will continue to monitor the roll out of the changes, including when legislative amendments are proposed.

In the meantime, if you have any questions on how this may affect you, our Australian FDI team can be available to discuss.

White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.

This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.

© 2024 White & Case LLP

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