All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Australia tightens rules on foreign investment

nut-165083-1280.jpg

Jock McCormack of DLA Piper summarises tax-related developments from early June 2020, as Australia takes a more stringent approach towards compliance procedures involving foreign investments.

On Friday, June 5 2020, the Australian Treasurer announced significant changes to Australia’s foreign investment policy/framework mainly driven by concerns regarding emerging national security risks and related developments. 

These foreign investment reforms follow upon certain temporary measures announced on March 29 2020 and will be the subject of exposure draft legislation expected to be released for consultation in July with a view to commencement of the new law from January 1 2021. 



Briefly, these reforms enable the Treasurer, amongst other things, to impose conditions or block investments by foreign persons on national security grounds and also to strengthen compliance measures, information sharing and enforcement powers, as well as provide certain administrative enhancements. 



Most particularly, the Australian Taxation Office (ATO) will increasingly provide a key role in administering, monitoring and implementing the enhanced foreign investment rules/framework, including maintaining a foreign investment register, additional access and information sharing powers with overseas counterpart agencies through various compliance activities – however consistent with Australia’s privacy and confidentiality laws. 



Client professional privilege 



Given the ATO’s recent well-publicised concerns with and actions on alleged excessive client professional privilege claims (as evidenced by the 2019 case with Glencore International and recent pursuit of certain professional firms), we would expect the continuing rigorous pursuit of taxpayer documentation in the coming months. 



Taxpayer alert



The ATO also released on May 25 2020 Taxpayer Alert 2020/2 dealing with the mischaracterisation of certain arrangements connected with foreign investment into Australian entities. The Taxpayer Alert deals with, amongst other things, cross border debt finance and certain arrangements minimising interest or royalty withholding tax in the context of the Australian/US double tax treaty and threatens the use of Australia’s general anti avoidance provision (Part IV A), diverted profits tax and related integrity measures. 



Hybrid mismatch rules – amendments 



Separately, new legislation was introduced into the Australian parliament on May 13 2020 dealing with certain clarifications to the Australian hybrid mismatch rules, including most particularly the integrity rule. Broadly, the integrity rule will be strengthened to ensure that it can apply to financing arrangements that have been designed to directly circumvent the operation of the hybrid mismatch rules. 



The new legislation when enacted will broaden the operation of the integrity rule to ensure that it could still apply in certain circumstances where the following specific hybrid mismatches arise; 

  • The deducting hybrid mismatch (which arises where two jurisdictions permit a deduction in relation to the same payment), and 

  • The hybrid financial instrument (a mismatch which exploits the tax treatment of a financial instrument, e.g. redeemable preference share). 


In addition, the new legislation also clarifies that in working out what constitutes ‘foreign income tax’ for the purposes of the integrity rule, any foreign municipal taxes and state taxes will also be taken into account to determine whether a payment has been subject to foreign tax at a rate of 10% or less.




Jock McCormack

T: +61 2 9286 8253

E: jock.mccormack@dlapiper.com





more across site & bottom lb ros

More from across our site

Incoming amendments to the treaty could increase costs on non-resident Indian service providers.
Experts say the proposed minimum tax does not align with the OECD’s pillar two regime and risks other countries pulling out.
The Malawian government has targeted US gemstone miner Columbia Gem House, while Amgen has successfully consolidated two separate tax disputes with the Internal Revenue Service.
ITR's latest quarterly PDF is now live, leading on the rise of tax technology.
ITR is delighted to reveal all the shortlisted firms, teams, and practitioners for the 2022 Americas Tax Awards – winners to be announced on September 22
‘Care’ is the operative word as HMRC seeks to clamp down on transfer pricing breaches next year.
Tax directors tell ITR that the CRA’s clampdown on unpaid taxes on insurance premiums is causing uncertainty for businesses as they try to stay compliant.
HMRC has informed tax directors that it will impose automated assessments on online sellers with inaccurate VAT returns, in a bid to fight fraud.
UK businesses need to reset after the Upper Tribunal ruled against BlackRock over interest deductions it claimed on $4 billion in inter-company loans, say sources.
Hong Kong SAR’s incoming regime for foreign income exemptions could remove it from an EU tax watchlist but hand Singapore top spot in APAC.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree