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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Global | Publication | November 2021
The Australian Federal Government has released updates to the proposed core regulatory and tax framework for the new corporate collective investment vehicle (CCIV) regime. This development comes after the Federal Government committed to establishing a commercially viable regime for CCIVs by 1 July 2022. It is a welcome and much awaited step forward for the Australian funds management industry, aimed at putting its investment offerings on a similar footing to other jurisdictions for global investment.
It has been well documented for over a decade that the lack of an internationally recognisable collective investment vehicle has caused opportunities to be missed in the Australian managed funds industry. A principal concern has been that foreign investors are not sufficiently familiar with the unit trust, that is the general model for Australian funds. Being less common overseas, a lack of clarity around this structure has contributed to uncertainty and perceived risk from foreign investors.
The CCIV has therefore been designed with a view to increasing the competitiveness of the Australian managed funds industry internationally to attract offshore investment. In this regard, the Government has had a focus on ensuring the regulatory and tax framework for CCIVs would offer internationally recognisable investment products, flow-through tax treatment, commercial flexibility and strong investor protections.
The draft law for CCIVs has been in circulation for some time. Back in 2018, the first of several tranches was released for public consultation. The regulatory framework followed analysis by the Government of the regulatory regimes of leading fund domiciles, target export markets and major financial centres in our region. The framework drew from the features of other equivalent vehicles internationally, such as European funds operated under the UCITS Directive and the UK open ended investment company (OEIC). More recently, Singapore has introduced laws providing for variable capital companies (VCCs) which has arguably increased the pressure domestically to introduce an equivalent offering. However, certain key features and issues with the previous tranches of CCIV draft legislation have proved problematic and been the subject of feedback from industry.
The draft CCIV package released in August 2021 is a combination of regulatory and tax components. It includes:
The 2021 package of regulatory and tax law has also sought to address a number of the concerns with earlier iterations. In particular, changes have been made from a regulatory perspective in the following areas:
In general terms, the tax framework for CCIVs seeks to ensure the attribution flow-through taxation arrangements applying to attribution managed investment trusts are also available to CCIVs, subject to meeting certain eligibility criteria. The latest package of tax provisions has been introduced with commentary that the draft law has been streamlined and simplified to achieve this. However, initial industry feedback on the package suggests that there is more work left to do with this part of the framework.
With Australia’s CCIV now more clearly on the horizon, it will be critical for fund managers, super funds, investors and a range of other financial and fundraising institutions to consider:
A brief initial period of consultation on the legislative package by Treasury closed on 24 September 2021. As the regime is intended to take effect on 1 July 2022, funds industry stakeholders will be watching the progress with great interest.
Publication
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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