A fairer and simpler framework for foreign investment fees

The amendments to Australia's foreign investment regime came into effect on 1 January 2021.  These amendments represent the most significant and substantial changes to the regime since FATA commenced operation almost five decades ago.

The reform was given effect by the following legislation:

• the Foreign Investment Reform (Protecting Australia's National Security) Act 2020, which amended the Foreign Acquisitions and Takeovers Act 1975 (FATA); and
• the Foreign Investment Reform (Protecting Australia's National Security) Regulations 2020, which amended the Foreign Acquisitions and Takeovers Regulation 2015 (FATR); and
• the Foreign Acquisitions and Takeovers Fees Imposition Amendment Act 2020, which amended the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 (Fees Act),

(together, the New Regime).

The Reform establishes a new fee framework for applications, notices and notifiable national security actions under the FATA.

From a fees perspective, the main intentions of the FATA and Fees Act are:

• having a fit-for-purpose, well-resourced foreign investment regime and robust arrangements to monitor and enforce compliance with the regime; and
• to ensure that foreign investment policies are as clear and as consistent as possible so that the appropriate and proportionate fees and penalties are applied in order to provide investor certainty and maintain investor confidence in Australia.

Summary

Some of the key fee and penalty provisions of the New Regime include:

• the introduction of new fees for new actions established under the New Regime;
• a $0 monetary screening threshold applies on all acquisitions of certain categories of assets and transactions;
• increased penalties for non-compliant foreign investors; and
• establishing a framework for changes to foreign investment fees, including changes to the calculation methodology and potentially significant fee increases for high-value acquisitions.

Monetary Thresholds

The blanket $0 monetary screening thresholds that came into effect on 29 March 2020 in response to the economic uncertainties associated with the COVID-19 pandemic were removed to coincide with the New Regime coming into effect. 

The monetary thresholds that were in place before the COVID-19 pandemic were reinstated on and from 1 January 2021, adjusted for indexation at the rates they would have otherwise been had the COVID-19 amendments not been made.

However, the New Regime retains the $0 monetary screening thresholds for all acquisitions by foreign persons of 10% or more (and in some cases less than 10%) in a ‘national security business’.

The concept of ‘national security business’ was introduced by the New Regime.  The definition for this concept is still under consideration as it relates to the concept of ‘critical infrastructure’ under the Security of Critical Infrastructure Act 2018 (Cth), which itself is currently subject of a substantial reform as part of the package of reforms envisioned by Australia’s Cyber Security Strategy 2020.

The exposure draft of the Security Legislation Amendment (Critical Infrastructure) Bill 2020 is currently undergoing consultation.  However, if the bill is passed in its current form, then, together with the New Regime, the combined effect of these reforms would be that the $0 monetary screening thresholds would be retained for a number of categories of assets and types of transactions.

Fee Framework

The intention of the reform to the fee framework is to:

• more fairly share the costs incurred by FIRB in assessing an application.  It is suggested that the revised fees more accurately reflect the level of assessment involved in respect of that proposed transaction; and
• simplify the fee arrangements so as to reduce the administrative burden of determining the fee that is payable for a notification. 

In line with the above objective, the New Regime:

• amends the application fees (for both fixed and progressive rate fees) and monetary thresholds.  The changes have increased the fees payable for acquisitions of interests in certain assets, while decreasing others;
• introduces new concepts and formulae for calculating the fees payable (i.e. the value of mining or production tenements held by a land entity will now be included in the pool of assets considered when calculating the value of residential land and vacant commercial land held by that entity to determine whether the 10% total asset value threshold is met); and
• grants an ability to receive a discount on the fees payable for certain actions (i.e. a reviewable national security actions and significant actions that are not notifiable or notifiable national security actions, that are voluntarily notified to the Treasurer or are called in by the Treasurer).

The practical impact of the changes to the fees framework will depend on the asset, the nature of the transaction and the consideration payable by the foreign person.  By way of example:

• the fees payable for a foreign government investor starting an Australian business has decreased from $10,600 to $2,000; while,
• the maximum fee cap has increased to $500,000 (previously $107,100).

Broadly speaking, there is a noticeable shift of costs onto foreign person applicants.  This observation is supported by the explanatory memorandum for the New Regime which estimates that the revised framework will result in approximately 100 additional applications and 1,800 additional registrations being made by foreign persons each year, which translates to, on average, an additional aggregate compliance cost of approximately $1.5 million per year.

The schedule of fees is set out in the Fees Act.  The Fees Act should be considered in tandem with the FATR, which contains the rules for calculating the fees payable under the new framework.  We recommend these provisions be reviewed in significant detail. 

Penalties

The various criminal and civil penalties for non-compliance with the FATA have been significantly increased under the New Regime.  

For instance, if a foreign person now:

• fails to give notice of a 'notifiable action' or 'notifiable national security action';  
• takes an action notified to FIRB prior to receiving FIRB approval; or
• contravenes an order made by the Treasurer or a condition of the person’s FIRB approval,

                the maximum:

• criminal penalty:
  • for an individual – 10 years imprisonment or 15,000 penalty units or both (previously the maximum penalty was 3 years, 750 penalty units or both); and
  • for a corporation – 150,000 penalty units (previously the maximum penalty was 3,750 penalty units); and
• civil penalty is the lesser of:
  • 2.5 million penalty units; and
  • the greater of the following:
    • 5,000 penalty units for an individual or 50,000 penalty units for a corporation; and
    • a specified amount referable to the value of the relevant action (there will be a table setting out how to calculate the specified amount),

(previously the maximum civil penalty was 250 penalty units for an individual and 1,250 penalty units for a corporation).

Under the New Regime, the giving of false or misleading information relating to a FIRB application can now result in a maximum civil penalty as described above.  Under the Old Regime there was no penalty for committing such offence.

There is also new criminal and civil penalty provisions, and significant maximum penalties, for non-compliance with new provisions such as the call-in power, last resort power regime and the directions power.  Further detail in relation to the new penalties connected with the directions power is provided under the Compliance and Enforcement tools heading.

Penalties

Under the Old Regime, the Treasurer's enforcement powers were limited to:

• seeking criminal prosecutions and civil penalty orders (other than in respect of the giving of infringement notices and fines for breaches of the residential real estate FIRB rules); and
• a general information gathering power to investigate potential breaches.

Under the New Regime:

• the infringement notice regime is expanded to cover all types of foreign investments (not just investments relating to residential real estate); and
• the Treasurer is given:
  • monitoring and investigative powers. including, but not limited to, an ability to access (with consent or as permitted by a warrant) the premises of, or connected with, foreign persons for the purposes of gathering information.  This change was to bring the Treasurer’s compliance and enforcement powers in line with those of other business regulators;
  • the power to accept enforceable undertakings from foreign persons;
  • the power to give directions to persons in order to prevent or addresses suspected breaches of the FIRB regime.  The wording relating to this power is quite broad. It includes the ability to direct a person to comply with specified provisions in the FIRB legislation and certain conditions of their FIRB approval. Failure of a foreign person to comply with a direction will constitute an offence; and
  • the power to revoke a FIRB approval where a foreign person has provided false or misleading information in a material particular prior to the grant of the approval.

Also, a foreign person who undertakes an action(s) pursuant to a no objection notification must now notify the FIRB within 30 days of taking such action.

Notifiable National Security Actions

The Federal Government has also released proposed legislation to amend the Security of Critical Infrastructure Act to introduce an enhanced framework for the security and resilience of critical infrastructure in Australia. The proposed amendments to the Security of Critical Infrastructure Act are also expected to greatly expand the industries and asset classes which are covered by the framework.

The amendments to both regimes are comprehensive and will impact a broad range of foreign investors and industry sectors in which they invest.