The Federal government announced on 5 June 2020 that the current temporary Foreign Investment Review Board (FIRB) rules put in place in response to the COVID-19 pandemic (which we outlined here) are expected to come to an end on 1 January 2021.
As part of significant proposed changes to the FIRB regime, the Treasurer also announced that the government will release draft legislation next month that introduces a new national security test for foreign investors seeking to invest in an Australian āsensitive national security businessā. The government proposes to legislate the changes before the end of the year, with the intention that they will take effect from 1 January 2021 when it is expected that the temporary emergency rules currently in place will expire. Significantly, the Treasurer has called these proposed reforms the most significant since the establishment of the foreign investment regime in 1975. We discuss the key aspects of these proposed changes below.
A permanent $0 threshold?
Perhaps the most significant change proposed by the government is the permanent lowering of thresholds for the review of foreign investment to $0 in a number of key industries. In last weekās announcement, the government seemed to express that the temporary $0 monetary threshold that is currently in place for all foreign investors will continue to apply if the investment proposal is in a āsensitive national security businessā, which we explain below.
A new national security test Āā āsensitive national security businessesā
The government will introduce a new national security test which specifically considers foreign investment into a new category defined as āsensitive national security businessesā. While the exact definition of this phrase has not yet been revealed, it is expected that the government will cast a wide net and include businesses operating in sectors such as technology, data, energy, water, telecommunications and ports.
Of particular importance is the inclusion of water and data into this new category, which is a potentially very significant policy change depending on how these rules are drafted. The decision to categorise water as āsensitive national security businessā assets could capture many foreign investments in businesses operating in the mining and agricultural spaces. As for data, the Treasurer has expressed the governmentās focus on businesses that ācollect, store and own data that is critical to Australiaās national security and defenceā. This categorisation is broader than may initially appear to be the case, which is reflected in the current parliamentary inquiry into Alinta Energy and their failure to meet the FIRB conditions imposed on its acquisition by Chow Tai Fook which is largely focused on data storage and security.
Most other sectors that will fall under the new test are already considered sensitive under the existing legislation, which means they are already subject to a reduced screening threshold of $55 million. Given this the reforms may not have as drastic an impact on businesses operating in these other sectors other than a further reduced threshold to $0.
Following the implementation of these changes next year, foreign investors will need to factor in additional time and costs into their transaction time line and budget.
The Treasurer has confirmed that passive foreign investments in non-sensitive areas will be āstreamlinedā, but has not yet clarified what this might mean for foreign investors practically.
Call in powers
Notably, the proposed changes may empower the Treasurer with ācall inā powers. Essentially, this means that foreign investments can be assessed before, during or after the acquisition in question, and the Treasurer will be granted the power to order to impose conditions or a divestment of that acquisition (even after the investor has received FIRB approval) if national security concerns require it.
McCullough Robertson can assist with any queries relating to the changes made by the rules. Please reach out to one of our specialists for more information.