The Australian parliament asked the senate standing committee on rural and regional affairs and transport in July 2011 to report on the application of the national interest test – particularly in relation to agricultural land and agribusiness – the role of sovereign funds in acquiring Australian assets, and the rules and decision making process of the Foreign Investment Review Board (FIRB).
On 26 June 2013, the committee issued its report, making a total of 29 recommendations. The key recommendations are set out below.
National interest test
The test for approving a foreign investment in Australia is whether it is “contrary to the national interest” (sections 18 and 19 of the Foreign Acquisitions and Takeovers Act [FATA] 1975). There is no definition of “national interest” in the FATA. FIRB policy states that the government determines national interest concerns on a case-by-case basis, having regard to factors including national security, competition, the impact on the economy and community, other government policies, and the type of investor. The committee expressed deep concern about “the lack of a systematic approach by FIRB to the conduct of the national interest test”. It recommended that the transparency and public awareness of the national interest test be increased so that it:
- provides precise and unambiguous instructions to prospective foreign investors about their obligations to FIRB and the nation’s treasurer, and how the national interest test is conducted; and
- builds confidence in the public, FIRB stakeholders and the parliament that the national interest test is being rigorously and fairly applied, and takes into account all relevant factors including impacts on rural communities and the agricultural industry.
Agricultural register
The committee strongly supported the then Labor government’s plans – confirmed in October 2012 – to develop a register for foreign ownership of agricultural land, as there is currently a significant lack of detailed and accurate information regarding foreign investment in the Australian agricultural sector.
Key features
The committee recommended that the register should include the following key features: i) an initial stocktake of foreign ownership of agricultural land, agribusinesses and water entitlements, which is subsequently updated on an ongoing basis; ii) divestments as well as investments; iii) no minimum threshold for reporting; iv) participation in the register should be a legal requirement with appropriate mechanisms in place for non-compliance; v) the levels and trends of foreign ownership of land, agribusiness and water entitlements should be published annually; vi) to protect privacy, country-of-origin details for private foreign companies should be included in the register at aggregate levels only; and vii) parliamentarians, parliamentary committees and any relevant government agency may obtain these details upon request.
In the then Labor government’s response to the committee’s report, it recommended that care be taken to avoid disclosing private or commercially sensitive information, or breaching Australia’s international obligations.
Reducing FIRB threshold
The committee considered that the current investment threshold of A$248 million (US$228 million) for triggering an FIRB review of proposed private foreign investments in the agricultural industry was far too high, given that the current threshold only covers a very small number of agricultural acquisitions.
Its key recommendations include: i) the threshold for notification of private foreign investments in agricultural land be lowered to A$15 million and also cover “cumulative” (or aggregate) purchases that total A$15 million; ii) FIRB reviews for any proposed foreign acquisition of an agribusiness where investment exceeds 15% or more in an agribusiness valued at A$248 million (indexed annually), or exceeds A$54 million; and iii) all investments in agricultural land or agribusiness by a state-owned enterprise continue to require FIRB approval.
The committee’s other recommendations include:
- amending the FATA to provide more effective compliance mechanisms in relation to undertakings given by foreign investors and conditions of FIRB approval. Any new compliance regime should provide the treasurer and relevant officials with a wide variety of compliance tools, in addition to forced divestiture, so that compliance matters can be resolved more efficiently and in proportion to the severity of any breaches;
- updating the definitions of “Australian rural land” and “Australian urban land” in the FATA to more accurately reflect the common understanding of these terms. The updated definitions would also apply to the register for foreign ownership of agricultural land to ensure consistency;
- strengthening Australia’s tax regulations in order to prevent tax leakage that may occur due to business structures and practices used by foreign investors in relation to transfer pricing, capital gains, passive income, thin capitalisation and other tax mechanisms; and
- establishing an Independent Commission of Audit into Agribusiness, or similar body, to develop a comprehensive policy approach to Australian agriculture.
Election result
The Australian federal election, which was completed earlier this month, resulted in a change of government. It remains to be seen how the implementation of any of these recommendations may be affected by the election’s result.
Michael Sheng and Tiffany Barton are partners at Ashurst in Shanghai and Melbourne, respectively. Tai Fred, a lawyer at Ashurst in Melbourne, co-authored this article
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