The regulatory landscape for foreign investment in Australia is constantly evolving. This evolution requires the Australian government to carefully balance competing considerations: on the one hand, encouraging inbound investment to boost economic growth, while on the other, minimising the risks to Australia's national interest, including national security and supply chain resilience from international economic integration.

Australia's foreign investment screening process also provides our government with an opportunity to monitor other areas of national interest concern, for example potential leakage of tax revenue from complex or opaque acquisition and financing structures or transfer pricing arrangements by foreign investor applicants. Foreign investors need to remain attuned to developments in Australia's foreign investment regime. In this update we look at the following:

• The Future Made in Australia Bill 2024 and what it means for foreign investment into Australia.
• Treasury's increased scrutiny of tax information and historical foreign investment approvals (i.e., 'FIRB' approvals).
• Key trends revealed in Treasury's most recent quarterly report on foreign investment in Australia.

Future Made in Australia Bill 2024

On 3 July 2024, the Australian government introduced the Future Made in Australia Bill to Parliament. Following scrutiny by Senators, on 6 September 2024 the Senate Economics Legislation committee released its report on the Bill. The Bill provides the legislative framework to underpin the Australian Government's 'Future Made in Australia' (FMIA) agenda, which was announced in the 2023-24 Federal Budget. The FMIA agenda aims to unlock private sector investment to build a stronger, more diversified and more resilient economy driven by renewable energy that creates secure, well-paid jobs in Australia. The FMIA agenda reflects global trends which have seen a number of other countries introduce industrial policy measures to promote 'green investment' and to build supply chain resilience, for example the US Inflation Reduction Act.

The Future Made in Australia Bill will enable the Commonwealth government to direct A$22.7 billion of support to help facilitate private sector investment in priority areas for Australia's future. We outline the key goals and outcomes of the Bill and the FMIA agenda below.

A new 'National Interest Framework'

A new 'National Interest Framework' will establish key sectors in which foreign investment will be incentivised. The Bill identifies two streams for investment: (1) net zero transformation; and (2) economic security and resilience.

A robust 'sector assessment' process

A robust 'sector assessment' process will assist government in identifying sectors for investment that align with the National Interest Framework.

Community Benefit Principles

'Community Benefit Principles' will guide decisions on the grant of support under the FMIA agenda (see section 10 of the Bill). These guiding principles include:

• promoting safe and secure jobs that are well paid and have good conditions;
• developing skilled and inclusive workforces, including by investing in training and skills development and broadening opportunities for workforce participation;
• engaging collaboratively with and achieving positive outcomes for local communities;
• strengthening domestic industrial capabilities, including through stronger local supply chains; and
• demonstrating transparency and compliance in relation to the management of tax affairs, including benefits received under FMIA support.

The Senate's report identified broad support for the Bill but also flagged some concerns raised by industry, the Opposition and the Australian Greens. In particular, stakeholders highlighted the need for clarity within the National Interest Framework and transparency in the sector assessment process.

Establishing a ‘Front Door’ for major, transformational projects

In connection with the FMIA agenda, the Government proposes to establish a 'front door’ for major, transformational projects with a goal to make investing in Australia simpler and thereby to attract more global and domestic capital. To achieve this, the Government will streamline and coordinate regulatory processes relevant to investors. The Government's Front Door Consultation Paper provides the following examples:

• streamlining, consolidating and coordinating investor's interactions with Government agencies, including facilitating connections to existing project development supports;
• assisting investors with navigating Australia’s regulatory frameworks by mapping out regulatory requirements and supporting proponents to navigate them;
• establishing a single point of entry for major transformational investment proposals;
• identifying major transformational projects through a prioritisation process and determining unique ways to facilitate such projects; and
• facilitating public financing, such as coordinating engagement with the Government’s Specialist Investment Vehicles.

The Government will develop this proposal in consultation with investors, businesses, governments, unions, communities and other experts over the remainder of 2024.

What does this mean for foreign investors?

Although the FMIA agenda encompasses both domestic and foreign investment, it is inevitable that investment from abroad will play an important role in Australia's transition to net zero and in building Australia's supply chain resilience.

The Future Made in Australia Bill will not amend the Foreign Acquisitions and Takeovers Act 1975 (Cth). Nevertheless, we expect that FIRB will take the FMIA agenda into account in advising the Treasurer on foreign investment proposals. In fact, Treasury's most recently updated Foreign Investment Policy highlights the government's focus on attracting investment to facilitate the net zero transformation and the diversification of critical mineral supply chains. These priorities reflect the two investment streams under the proposed 'National Interest Framework' under the Future Made in Australia Bill.

Currently, the FIRB process is focused on ensuring that investment into Australia does not present an unacceptable risk to the national interest (including national security). The FMIA agenda may provide an informal pathway for FIRB to prioritise and streamline those investment proposals from foreign persons which align with the FMIA agenda, in turn supporting investments which are within the National Interest Framework and reflect the Community Benefit Principles. There is a strong policy rationale for ensuring that investments consistent with the FMIA agenda are not delayed through the FIRB process.

Treasury scrutiny of historic FIRB approvals

Turning now to a separate matter, the Foreign Investment Division of Treasury has been scrutinising historical foreign investment approvals to ensure that tax information provided to FIRB as part of the application was not misleading, including by way of the omission of relevant information. These investigations have been prompted by concerns raised by the Australian Taxation Office (ATO) over disclosures which, while technically legally correct, may have misled FIRB and the ATO as to the intended use of structures that are perceived as "aggressive". The Australian government has long taken the view that risks to tax revenue are a national interest concern. In its recently updated Foreign Investment Policy, Treasury has reiterated that it will closely examine transactions involving complex structures that present high tax risks, as we outlined in our previous update on the revised policy.

What does this mean for foreign investors?

If Treasury concludes that information provided as part of previous FIRB applications was false or misleading in a material aspect, this could result in the Treasurer seeking penalties and, potentially, revoking the earlier approvals and ordering divestment. Where an earlier approval is revoked, the Treasurer may issue a fresh approval if appropriate (albeit with conditions) based on more accurate and transparent information. If Treasury is satisfied that information was provided and did not have the effect of being misleading, no further action is likely to be taken and these transactions are likely to retain their approval.

Treasury's focus on scrutinising foreign investors' historical tax information comes at the same time as we are seeing an increasing number of tax-related requests for information during the course of current FIRB applications. The Treasurer is also commonly applying tax-related conditions on FIRB approvals. Applicants can pre-empt these questions by proactively disclosing tax information in FIRB applications, and preparing responses ahead of time to any potentially probing questions FIRB may ask (for example, in relation to the use of entities incorporated in offshore jurisdictions). Doing so can help ensure that transaction timelines are not unduly delayed.

These investigations are an example of Treasury's heightened focus on compliance and reflect a noticeable increase in compliance activity. To minimise the risk of post-approval compliance action, foreign investors should take care to be accurate, fulsome and transparent in the information they provide to FIRB, both in their initial application and in response to FIRB's subsequent questions and requests for information during the assessment process. This will ensure that foreign investors do not unintentionally mislead FIRB during its assessment process either through omission or otherwise.

Quarterly report – a snapshot of the regulation of foreign investment in Australia

Treasury has recently released its Quarterly Report on Foreign Investment for the period 1 October to 31 December 2023. This report provides a snapshot of the regulation of foreign investment in Australia for the quarter and includes key performance data.

What stands out?

• FIRB issued 16 infringement notices in this quarter, a sharp increase from the one infringement notice issued for all of FY2022-23. This increase aligns with the flurry of activity seen in the FIRB compliance space which has followed the bolstering of FIRB's compliance arm.
• The US was the largest source for approved commercial investment proposals by value ($7.6 billion), followed by Singapore ($3.8 billion), Japan ($3.4 billion), Canada ($1.6 billion) and France ($1.5 billion).
• The dominant sectors for foreign investment in Australia which received approval in this quarter were mineral exploration and development ($12.9 billion) followed by services ($9.9 billion).
• Conditions on foreign investment approvals were issued more frequently, with 44% of approvals being issued subject to conditions in this quarter, an increase of 38% from Q3.
• Of the 332 commercial foreign investment proposals approved in this quarter, there were only 16 'national security' investment approvals issued, with only one approval issued with conditions.
• The median processing time for applications in this quarter was 42 days, up from 37 days in Q3.

Future reports will reflect the impact on timing of FIRB's new streamlined review process for low-risk applications.

Read our previous update outlining what foreign investors should be aware of following important recent changes to Australia's foreign investment framework. In the current global climate, there is a lot to navigate and be excited about in terms of opportunities available to clients across a number of industry sectors.

For further information or assistance with navigating Australia's FDI regime, please contact our team of FIRB specialists. Our national FIRB team remains dedicated to working with clients globally to tailor solutions for their business goals. We look forward to connecting with you throughout the remainder of 2024 and into the new year.