{"id":87806,"date":"2024-07-11T12:54:37","date_gmt":"2024-07-11T02:54:37","guid":{"rendered":"https:\/\/www.aspistrategist.ru\/?p=87806"},"modified":"2024-07-11T12:54:37","modified_gmt":"2024-07-11T02:54:37","slug":"australia-toughens-enforcement-of-foreign-investment-rules","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/australia-toughens-enforcement-of-foreign-investment-rules\/","title":{"rendered":"Australia toughens enforcement of foreign investment rules"},"content":{"rendered":"
<\/figure>\n

Treasury has stepped up enforcement of Australia\u2019s foreign investment regime, however it continues to try to balance protecting national interests and encouraging investment inflows.<\/p>\n

Data suggests some foreign investors, noting national security provisions in the system, are choosing other destinations for their money or keeping it at home. Chinese investors remain notably unenthusiastic about Australia.<\/p>\n

The latest\u00a0quarterly report<\/a>\u00a0on Australia\u2019s foreign investment shows Treasury issued 16 infringement notices for non-compliance with conditions in the December quarter, up from only one in all 2021\u201322 and none at all in the previous financial year.<\/p>\n

Treasury gets a fairly steady stream of referrals from government agencies and the public over potential non-compliance, with 48 received between July and December last year and 114 in 2022\u201323.<\/p>\n

In the first half of 2023\u201324, Treasury approved 616 investment proposals worth a total of $86.7 billion (not including residential real estate). That was roughly in line with 2022\u201323, when 1310 proposals worth $171.5 billion were approved over the 12 months.<\/p>\n

However, the number of proposals withdrawn reached almost a quarter of the numbers approved. This was double the rate of withdrawals over the previous two years and may point to growing difficulty in winning official approval.<\/p>\n

Although Treasury provides no explanation for investment proposals being withdrawn, a common reason is that investors are told their proposals will not be approved or may require unacceptable conditions or restructuring.<\/p>\n

About 75 percent of approvals by value are made subject to conditions, which may relate to tax structuring, board representation, data security or deadlines for developing projects.\u00a0Companies pay hefty fees to submit a foreign investment proposal for approval.<\/p>\n

Following a 2021 toughening of national security provisions in the foreign investment legislation, investors in specified sectors must seek Foreign Investment Review Board approval even if investments are below the mandatory review thresholds.<\/p>\n

In the half year to December, only 29 proposals worth a total of $600 million were approved under the new national security provisions. Just three were made subject to conditions.<\/p>\n

This is a sharp fall from the previous two years and suggests the new national security provisions may be deterring investment. In 2022\u201323, the FIRB approved 110 proposals worth $5.7 billion under the national security provisions, while in 2021\u201322, there were 119 proposals worth $10.1 billion.<\/p>\n

Australia\u2019s foreign investment screening has become much more rigorous over the past decade, with far greater involvement of the national security agencies and the Australian Tax Office and imposition of significant application fees designed to fund monitoring and compliance.\u00a0There were big legislative overhauls in 2015 and 2021.<\/p>\n

Foreign investment lawyers say increasingly onerous requirements are a disincentive to investment. This year\u2019s budget included measures to ease compliance obligations for \u2018low risk\u2019 investors\u2014the example given was Canadian pension funds\u2014and also offering fee refunds to investment proposals that were not approved.<\/p>\n

The actual flow of foreign direct investment into the country (as measured by the\u00a0Australian Bureau of Statistics<\/a>, rather than the FIRB, which tracks only new proposals) bounces widely from one year to the next, but a four-year trend suggests Australia is becoming less attractive to foreign business.<\/p>\n

The $189 billion of foreign direct investment from 2020 to 2023 was the lowest since the four years to 2010 and 30 percent down from the peak four years of 2016 to 2019.\u00a0(This includes only direct investment by foreign companies and excludes portfolio investment by pension funds and other institutions.) While the latest period includes the pandemic, investment flows last year were little more than they were in the heart of the 2008\u201309 global financial crisis.<\/p>\n

There are many possible reasons for the decline besides the screening regime, starting with Australia\u2019s 30 percent corporate tax rate, compared with an OECD average of 23.6 percent.<\/p>\n

The annual\u00a0World Investment Review<\/a>\u00a0from the United Nations Commission on Trade and Development (UNCTAD) shows Australia is not alone in managing the tension between encouraging investment for economic reasons while trying to protect sectors of national importance, including security-related concerns.<\/p>\n

Australia has screened foreign investment since 1975 and for decades was almost the only country to do so. UNCTAD records that in 1995, only three countries screened foreign investment.\u00a0 By 2011, 10 countries had adopted foreign investment screening while the latest UNCTAD report shows 37 nations now vet foreign investment proposals for national security risks, with eight more in the process of introducing screening. The\u00a0OECD<\/a>\u00a0says the Australian regime is still one of the world\u2019s most restrictive, second only to New Zealand.<\/p>\n

The rising sensitivity to potential threats from foreign investment is the product of an increasingly difficult geopolitical environment and emerging doubts, particularly in the developed world, about benefits flowing from globalisation.\u00a0UNCTAD\u2019s latest report comments that\u00a0\u2018global economic fracturing trends, trade and geopolitical tensions, industrial policies affecting strategic and manufacturing sectors, and moves by corporates to diversify supply chains are reshaping international production and FDI patterns\u2019.<\/p>\n

UNCTAD data shows that apart from the 2020 pandemic year, the US$1.3 trillion in global foreign direct investment last year was the lowest since 2010, while there has been no underlying growth in global investment flows since the years preceding the global financial crisis.\u00a0UNCTAD reports that foreign direct investment last year would have shown a 10 percent fall but for corporate restructuring forced by the new global minimum tax regime.<\/p>\n

It is possible that this tax restructuring contributed to the sharp fall in foreign direct investment in Australia last year, which dropped from $91 billion to $45 billion.\u00a0Swiss, Canadian and Dutch companies pulled large sums out of Australia last year while the three biggest investors\u2014companies from the United States, Britain and Japan\u2014all continued to increase Australian holdings.<\/p>\n

US firms poured a record $35.8 billion into Australia last year, reversing the losses that occurred following the Trump administration\u2019s tax changes designed to encourage firms to repatriate investment.\u00a0US firms withdrew a net $22.3 billion in 2020 and 2021.<\/p>\n

Investment from China remains weak. In 2022, Chinese firms withdrew a net $3.3 billion from Australia while their new investment last year was only $873 million, according to the ABS.\u00a0China\u2019s accumulated investment in Australia stands at $88 billion, which ranks it 10th, behind the Netherlands and Canada but ahead of New Zealand.\u00a0US investment in Australia by contrast is approaching $1.2 trillion, while Britain has 10 times as much investment in Australia than China has, at $879 billion.<\/p>\n

Australia has always claimed a much larger share of global investment flows than its economic size would suggest.\u00a0In 2022, Australia was ranked seventh, just behind France and Brazil, attracting foreign direct investment flows equivalent to 4.6 percent of the global total.\u00a0Inflows last year dropped Australia\u2019s ranking to 12th and its global investment share to 2.7 percent.<\/p>\n","protected":false},"excerpt":{"rendered":"

Treasury has stepped up enforcement of Australia\u2019s foreign investment regime, however it continues to try to balance protecting national interests and encouraging investment inflows. 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