Federal Foreign Acquisitions and Takeovers Legislation Gets Greens Lighted

Wednesday 25 November 2015 @ 11.24 a.m. | Corporate & Regulatory | Taxation

In August 2015, we reported on a package of Federal government reforms intended to strengthen the review of foreign acquisition and takeovers in Australia (see Federal Foreign Investment Framework: Package of Bills) - yesterday (24 November 2015) that legislation, following on negotiations between the Government (through the Treasurer and the Minister for Agriculture) and the Greens (through its finance spokesperson Sen. Peter Whish-Wilson and its leader Sen. Richard di Natale), was able to finally pass both houses of parliament with the support of the Greens' Senators.

To Recap

The reforms to the foreign acquisition and takeover review process were to be effected by the following legislation, initially introduced on 20 August 2015:

  • Foreign Acquisitions and Takeovers Legislation Amendment Bill 2015;
  • Register of Foreign Ownership of Agricultural Land Bill 2015;
  • Foreign Acquisitions and Takeovers Fees Imposition Bill 2015; and
  • Foreign Acquisitions and Takeovers Legislation Amendment Bill 2015.

The key item, the Foreign Acquisitions and Takeovers Legislation Amendment Bill 2015, which passed yesterday (24 November 2015) and was assented today (25 November 2015), makes substantial changes to the Act to modernise the rules and strengthen the enforcement of the foreign investment system. Some important changes are:

  • the introduction of civil penalties and additional and stricter criminal penalties to ensure foreign investors and intermediaries do not profit from breaking the rules;
  • enabling the transfer to the Australian Taxation Office (ATO) of responsibility for regulating foreign investment in residential real estate, which it is said by the government, will further enable stronger enforcement and better compliance with the existing rules; and
  • enabling the lowering of screening thresholds for investments in Australian agriculture to ensure significant investments in this sector are scrutinised.

Legislative Events so Far

On 11 November 2015 both the Foreign Acquisitions and Takeovers Fees Imposition Bill 2015 and Register of Foreign Ownership of Agricultural Land Bill 2015 passed both the Senate after having passed the House of Representatives on 17 September 2015. The fees legislation introduces fees on all foreign investment applications from 1 December 2015, fees which government Senator Nigel Scullion is reported as saying:  

". . . would ensure Australian taxpayers were no longer funding the system’s administration, while providing additional resourcing to Treasury and the Australian Taxation Office to improve service delivery for investors".

The register of foreign ownership of agricultural land legislation establishes a foreign ownership register to be operated by the ATO. The register will require foreign investors to register essential information about their existing holdings and subsequent acquisitions of Australian agricultural land, a move which the government describes as ". . . providing greater transparency around foreign investment in agriculture, . . .”

Passage of the Key Item - Effects and Results

While passage of the Foreign Acquisitions and Takeovers Legislation Amendment Bill 2015 was aided by the Greens, it was not without compromise by the Government. The main compromise being that the Government has agreed to the establishment of a register of "foreign owned water entitlements" in its deal with the Greens.

For this, the Government was able to retain its policy commitment that it would implement a $15 million threshold on farmland proposals, to be applied cumulatively, while setting Foreign Investment Review Board (FIRB) scrutiny on foreign agribusiness proposals at the sum of $55 million. The opposition had sought to make amendments to the Foreign Acquisitions and Takeovers Legislation Amendment Bill, which would have lowered the FIRB threshold for foreign land acquisitions from $252 million to $50 million.

For the Greens Mr Whish-Wilson is reported as saying that while the above is a compromise, 15 million is:

". . . better than the current spaghetti bowl of thresholds that have been set by ad hoc bilateral trade deals over the last 10 years in this country. So we would prefer to see $5 mil but $15 mil is a lot better than the current status quo."

Indicative of this "spaghetti bowl" effect referred to is, as the ABC PM program reports, the fact that:

"The threshold for private investors from the United States, New Zealand and Chile will remain at just over $1 billion, as set out in free trade agreements with those countries."

and

"Similarly, it remains at $50 mil for investors from Singapore and Thailand".

The compromise reached with the Greens will however, apply to private investors from any other country, and is also cumulative, meaning that a review will also be triggered for any purchase, once the investor's Australian land portfolio is worth $15 million. Further, agribusiness sales of $55 million will be subject to scrutiny; whereas, the threshold for both had previously been just over $250 million.

Other aspects of the deal included the Government committing to commencing a process for developing an implementation approach, involving full public consultation to address technical issues. Further, the Government is reported to be committed to undertaking a review of the treatment of water under the foreign investment review framework, once the water register was implemented and data was available on the level of foreign ownership of water entitlements.

Reaction and Comment

Mr di Natale, the leader of the Greens, is reported as saying, that his party had long called for a drop in the figure that acts as a trigger for the FIRB’s national interest test, wanting it to be as low as $5 million seeing the Government's agreement to cut it from $252 million to $15 million as: ". . . a significant step in the right direction”.

Mr di Natale saw the most important part of the outcome from his party's compromise with the Government as being the register of foreign owned water rights, and is reported as saying:

“We’re extremely proud to have a commitment, written into the legislation, that the government will establish a register of foreign owned water entitlements, in addition to the register of foreign owned land that we passed earlier this month, . . . As global warming and extreme weather events disrupt food production worldwide it's critical that we view Australia's agricultural land and water as key national assets, not to be sold off recklessly.”

The Treasurer and Agriculture Minister are reported to have confirmed the deal with the Greens saying it provided an opportunity to strengthen the nation’s foreign investment framework and ". . . to balance the changing business landscape and community expectations whilst ensuring Australia remains an attractive destination for much needed foreign investment."

Next Steps

The deal for passage of the legislation included agreement to the Green’s amendment, which introduces a sunset clause to the Register of Foreign Ownership of Agricultural Land Act 2015 to be triggered if the government has not passed legislation to introduce the water register, within the next 12 months.

As a result of the deal with the Greens, the foreign investment scrutiny reforms are now expected to start on 1 December 2015, with the Act being assented on 25 November 2015.

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products.

Sources:

Foreign Acquisitions and Takeovers Legislation Amendment Bill 2015; Register of Foreign Ownership of Agricultural Land Bill 2015; Foreign Acquisitions and Takeovers Fees Imposition Bill 2015 and Foreign Acquisitions and Takeovers Legislation Amendment Bill 2015 and supporting materials and speeches as reported in the TimeBase LawOne Service.

Government and Greens strike deal on foreign investment rules (ABC PM - 23 Nov 2015)

Deal done on foreign water register (Farm Weekly - 23 Nov 2015)

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