On Friday, 5 June 2020 the Federal Treasurer announced sweeping changes to Australia’s foreign investment framework. The proposed reforms are being touted as the most comprehensive reforms to Australia’s foreign investment review framework since the introduction of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) and are intended to address national security risks, bolster the existing review framework, and streamline investments in non-sensitive businesses.
When will the reforms take effect?
Treasury anticipates the reforms will be introduced into law on 1 January 2021. Accordingly, the proposed reforms will not affect the temporary measures introduced by the Government in response to the coronavirus crisis on 29 March 2020, which temporarily reduce the monetary screening thresholds for all foreign investments subject to the FATA to $0.
Our views on the proposed reforms
We welcome the Government’s review of Australia’s foreign investment framework (acknowledging that such a review is due), but note that great care must be taken with the final form of the reforms. Australia’s foreign investment framework is complex and the proposed reforms are far reaching. Given the current economic climate, it is critical that the reforms strike an appropriate balance between protecting Australia’s national interests and not unnecessarily stifling foreign investment. Foreign investment in Australia is highly important to the success of our economy.
Set out below is a broad summary of the reforms proposed and our views on each of those reforms.
|Proposed reform||Our view|
National Security Test
A ‘national security’ test will be introduced for investments that raise national security concerns, but fallli below existing monetary thresholds in the FATA. The existing ‘national interest’ test will remain unchanged and will continue
Under the proposed new national security test:
To allow investors to obtain greater certainty around their proposed investment, it is also proposed that investors will
|The new national security test aims to better protect Australia’s national interests, covering a broad range of foreign investments which would otherwise not be captured under the foreign investment review framework. However, it is critical to strike an appropriate balance between protecting Australia’s national interests and not unnecessarily stifling foreign investment which has played a significant role in the strength of our economy in recent years.
The balance to be struck will largely lie in the definition of what is a ‘sensitive national security business’, as this determines whether the proposed investment will be captured under the new regime. Treasury has already indicated that the existing definition of ‘sensitive business’ in the FATA which is used for the national interest test (and includes media, transport, and telecommunication businesses and infrastructure providers to these businesses) is too broad for the new mandatory notification requirements.
Treasury has indicated that it will undertake a consultation process on the definition of a ‘sensitive national security business’, which will run in parallel with the consultation period for the exposure draft legislation.
Streamlining less sensitive acquisitions by foreign government investors
Where an entity is or is deemed to be a ‘Foreign Government Investor’ (FGI) under the Foreign Acquisitions and Takeovers Regulation 2015 (FATR), it is currently subject to $0 thresholds when investing in Australia.
Under the proposed reforms, certain entities (that is, some investment funds) will no longer be treated as FGIs under the broader national interest test where no FGI has management rights and the FGI investors have no influence or control over the investment or operational decisions of the entity or any of its underlying assets. This will be done by:
The exempted FGIs would still be subject to normal screening at the thresholds for private foreign investors ($275 million, or $1,192 million for FTA partner countries), which apply when the temporary coronavirus-related measures are not in place and the new national security test would apply regardless of the value of the investment where the investment raises national security concerns.
|We welcome the proposal to streamline less sensitive FGI investments which may be unnecessarily regulated and delayed under the current foreign investment framework.
As the new national security test and the national interest test will collectively provide a sufficient backstop to any FGI investments requiring review, it is entirely appropriate to relax the restrictions on other FGI investments not captured under either test.
Other proposed reforms
Various other reforms are also proposed which are aimed at:
|We generally support these other reforms, which are primarily aimed at refining the current processes within the foreign investment framework, rather than introducing fundamentally new practices.|
The Government will shortly release exposure draft legislation for consultation on the reforms prior to its introduction into Parliament, and provide further guidance for investors on its implementation. For a more fulsome discussion of the reforms, please visit the Treasury website by clicking here or download Treasury’s Summary Booklet outlining the proposed reforms here.