However, as a response to the Full Federal Court's recent landmark decision in the Chevron Case , the Australian Taxation Office (ATO) has been upfront about taking a more activist role in policing and enforcing Australia's transfer pricing legislation. Further, Treasury, via the Foreign Investment Review Board (FIRB), appears to be facilitating this by asking quite detailed questions regarding the intragroup finance arrangements of foreign investors, and where this information is not immediately available, imposing conditions on FIRB approvals to require that information be provided to the ATO within 90 days of an acquisition completing. Further detail about the Chevron case is available in Full Federal Court Decision: Chevron Australia Holdings Pty Ltd (CAHPL) v Commissioner of Taxation

If foreign companies investing in Australia were not already anxious about the implications of the Chevron Case¹, this recent change in FIRB practice should mark a renewed focus on compliance with Australia's transfer pricing regime. Not only are foreign investors required to provide detailed information about their intragroup financing arrangements to the ATO, which may expose them to greater regulatory scrutiny, but their investments could potentially be put at risk if they have failed to comply with FIRB's conditions to provide information to the ATO and to comply with Australian taxation laws.

These changes should not, in our view, chill foreign investment into Australia. However, foreign investors should be mindful of these recent changes, to ensure that they are well positioned to mitigate any risks of non-compliance with Australia's transfer pricing legislation and the conditions of any FIRB approval. This is particularly significant given that FIRB has recently released advice suggesting a renewed vigour will be applied to compliance with FIRB conditions.

What are the 'standard' tax conditions?

Since 22 February 2016 (and updated in May 2016), a set of standard tax conditions have very often been applied to FIRB approvals. These conditions, if applied by the Treasurer or other decision-maker, effectively impose an obligation on foreign investors to comply with Australia's taxation laws, cooperate with the ATO in respect to information requests, pay outstanding tax debts and satisfy ongoing reporting requirements. Given that these conditions do not extend beyond compliance and reporting on compliance, foreign investors have accepted them without significant concern.

How has FIRB's review process changed?

Since the new FIRB regime was introduced in December 2015, FIRB has taken a more detailed approach to its consultation with government agencies, including the ATO. This has generally resulted in more detailed requests for information. Since the Chevron Case was decided, these information requests have tended to include a request for detailed information in relation to the intragroup funding arrangements of a proposed acquisition (if any).

Given that many FIRB applications are made in advance of financing arrangements being fully settled and documented, it is common for foreign investors to be unable to provide that detailed information during the assessment process. Previously, FIRB has tended to be satisfied with responses to the effect that the foreign investor would commit to comply with Australia's taxation laws – consistent with the 'standard' tax conditions.

This approach has recently changed, and FIRB is starting to impose a suite of additional tax conditions which require the foreign investor to provide detailed post-closing information to the ATO about the terms and accounting and tax treatment of any intragroup financing relating to the investment proposal.

What does this mean for foreign investors?

Having regard to FIRB's new approach, foreign investors should keep the following in mind:

• Don't delay your FIRB approval as a result of these new tax conditions. It is business as usual and the lodgement of your FIRB approval should still be a critical path item at the beginning of your transaction. The new tax conditions seem likely to be imposed by FIRB regardless of how advanced your investment proposal is, unless the information requests can all be answered during the application and assessment process.

• Don't lock down your intragroup financing arrangements to soon. The more detailed requests for information from FIRB may encourage foreign investors to finalise their internal arrangements earlier in the investment process to avoid the imposition of additional conditions. This is a mistake. Foreign investors should ensure that any information provided as part of their approval is appropriately caveated so that they have flexibility to adjust those arrangements should it be necessary.

• Ensure your intragroup financing arrangements are on objectively verifiable 'arm's length' terms. Foreign investors should assume that their intragroup finance arrangements will be subject to close scrutiny by the ATO, and that they will be required to provide detailed information to the ATO about those arrangements. This makes it imperative that foreign investors have an objective, independent, and verifiable basis for considering that the terms of their intragroup financing arrangements are on 'arm's length terms'.

The Chevron Case highlights that for foreign investors to be satisfied that they have a sufficient basis to respond to any challenges from the ATO, legal advice should be sought in relation to the interpretation of Australia's complex statutory regime and the evidence required to support their position.

In our view, a robust process involving legal advice and independent expert advice about the terms of any intragroup arrangements, will give foreign investors increased confidence that their intragroup financing will stand up to regulatory scrutiny. This is particularly important considering that FIRB has recently released information indicating that it will be taking a more rigorous approach to auditing compliance with the conditions attached to FIRB approvals.

How can we help?

MinterEllison has a dedicated foreign investment team, as well as experienced tax and tax controversy teams, that are able to provide specific legal advice in relation to the implications of the Chevron Case and FIRB's recent change in practice, as well as provide practical guidance to ensure that your intragroup financing arrangements will satisfy all FIRB and ATO requirements.