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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Australia | Publication | November 2022
Much has been made of the economic backdrop to the Albanese Government’s first budget. A deteriorating global economic outlook, alongside cost of living pressures and interest rate rises at home have exacerbated already challenging conditions for households, and for businesses still grappling with labour force shortages and supply chain struggles. This state of affairs is expected to create increased insolvency risks throughout 2023.
In his speech, the Treasurer, Dr Jim Chalmers MP, highlighted that structural pressures, including funding the National Disability Insurance Scheme (NDIS) and servicing debt, persist and will affect the budget bottom line into the future. That comes despite short-term improvements through lower than forecast unemployment and higher commodity prices.
Through a close analysis of the budget papers, this article goes beneath these budget headlines and provides further information on priorities for regulated entities across the Australian economy.
Earlier this year the Government doubled the fees for applications made under the foreign investment framework. A doubling of the maximum financial penalties for breaches in relation to residential land will follow from 1 January 2023, reinforcing the need to adopt a careful and informed approach to foreign investment applications and compliance obligations.
From 1 January 2023, the value of a Commonwealth penalty unit will rise by around 25% to $275. This will have a far-reaching impact across the Commonwealth statute book, representing a potentially material difference in areas like Anti-Money Laundering and Counter-Terrorism Financing, where even a single breach will now attract a maximum penalty of $27.5 million.
In addition, penalties for breaches of competition and consumer law will increase to $50 million per breach (up from $10 million per breach) and to 30% of annual turnover (up from 10% of annual turnover), whichever is greater. This change is proposed to take place immediately following passage of the relevant legislation.
Tenderers for Australian Government contracts worth more than $200,000 will, from 1 July 2023, be required to disclose their country of tax domicile by supplying their ultimate head entity’s country of tax residence. They will also be subject to the enhanced oversight of the National Anti-Corruption Commission (NACC), once established.
The Budget also announced new funding to enable Treasury to review the regulatory framework for managed investment schemes and to develop climate reporting standards for large businesses and financial institutions. This framework will be of direct relevance to all entities operating in the financial sector, which will have flow on impacts across the economy. Informed consultation on the technical aspects of climate reporting standards is highly recommended.
While headline-grabbing changes to income tax reforms and mooted resource windfall taxes were ultimately not part of this Budget, the Government has clearly forecast its intention to harness the power of the Australian Taxation Office (ATO) to raise additional revenue. A range of new and extended compliance measures intended to raise close to $5 billion were announced. This includes:
The Government has also committed to introducing legislation to clarify that digital currencies (such as Bitcoin) continue to be excluded from the Australian income tax treatment of foreign currencies. This maintains the current tax treatment of these assets, including the capital gains tax treatment where they are held as an investment. Notably, the exclusion does not apply to digital currencies issued by, or under the authority of, a government agency, which continue to be taxed as foreign currency.
In addition, the Government announced it would not proceed with a wide range of tax and superannuation commitments made by the former Government. This includes, for example, no longer allowing for the self-assessment of the effective life of intangible depreciating assets.
The forthcoming NACC (while its final form is not yet confirmed in legislation) will receive substantial funding to carry out its broad remit. As currently proposed, this includes jurisdiction extending to the private sector, which will be directly relevant to entities that provide, or have provided, services to or on behalf of Commonwealth Government entities.
Funding for the Office of the Australian Information Commissioner (OAIC) will be boosted by $5.5 million to investigate and respond to recent data breaches. While this funding amount is relatively modest, it comes on top of the new Regulations facilitating information sharing between telecommunications and financial services companies, and the recently introduced legislation increasing penalties for data breaches. Combined with the upcoming finalisation of the privacy law review by the Attorney-General’s Department and the potential for more high profile data breaches, privacy and cybersecurity compliance has been clearly marked as an important area of focus for the Government.
Additional resourcing will also be provided to the workplace regulator, the Fair Work Ombudsman (FWO), following the planned abolition of the Australian Building and Construction Commission (ABCC). The FWO’s compliance focus is revealed ahead of time each year, with 2022/23 seeing fast food outlets / restaurants / cafes, agriculture, sham contracting, large corporates and universities and contract cleaning as priority sectors and issues. This is combined with the Government’s proposed amendments to the Fair Work Act regarding the use of fixed-term contracts, flexible working arrangements and changes to collective bargaining rules, to name a few.
The Budget papers also reveal increased resourcing for the Australian Competition and Consumer Commission (ACCC), the Australian Prudential Regulation Authority (APRA) and the Australian Transactions Reports and Analysis Centre (AUSTRAC), potentially giving an indication of further regulatory focus over the coming year.
While broader economic pressures catalogued in the budget will persist, entities should also be aware of the proposed changes in the regulatory environment which could have a direct bearing on their own operations.
Entities should examine their regulatory compliance frameworks, knowledge base and business operations to understand the extent to which the changes outlined in the 2022/23 Federal Budget affect them.
Norton Rose Fulbright Australia has extensive experience advising entities on their governance, risk, legal and regulatory compliance frameworks and stands ready to help any entities wishing to undergo this vital due diligence task.
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