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The accounting firm has encouraged foreign private equity investors to pay attention to new tax laws that may add complexity and time pressure to transactions.
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Foreign investors warned on tax law changes: Grant Thornton
01 October 2024
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Grant Thornton has reminded foreign private equity (FPE) investors to remain up to date with topical Australian tax issues that may affect them.
The government has been growing the Foreign Investment Review Board’s (FIRB) compliance arm for several years and under specific tax laws applying to foreign entities there may be a requirement to seek a ‘no objection’ approval from the FIRB.
Grant Thornton said the ATO has a dedicated team consulted by the FIRB when an application is made to the latter, which then provides a risk rating of low, medium or high.
“Based on this assessment, the FIRB can apply ‘standard’ tax conditions to the application which if a proposed investment is considered to have a significant or high tax risk, then additional tax conditions may also be imposed.”
“If tax conditions are imposed, investors will have reporting and compliance obligations.”
Investors are expected to work in line with the ATO and its conditions by supplying certain information and entering into good faith negotiations on advance pricing arrangements.
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This also applies when requesting a private binding ruling or taking other action to resolve tax issues.
Final investment approval would be subject to the tax conditions being met and the investor being able to demonstrate compliance, Grant Thornton said.
Recently, FPE funds looking to invest in Australian assets were imposed with unprecedented tax disclosures and stricter tax conditions by the FIRB requesting ‘all tax advice’, including draft versions be provided.
There has also been a trend in private equity deals for an extra tax condition to inform the ATO and FIRB before looking to exit from the investment, as well as structures in tax havens being asked to justify the structure rationale.
Multiple areas within this space need to be understood by FPE investors, Grant Thornton said.
These areas include capital gains tax, proposed changes to the foreign resident CGT regime, the foreign resident CGT withholding regime, income gains, treaty protection, source rules and GST.
Grant Thornton noted the most “sticky” areas include income versus capital gains and GST.
This is due to the question surrounding whether there would be a future exit on the capital account or income account.
“There are several GST implications surrounding foreign investments into Australia that can lead to risks of material tax shortfalls and ATO compliance activity when overlooked in the planning stages,” Grant Thornton said.
“As GST is a ‘transactional’ tax, it is necessary to consider the GST-related impact of each step within a transaction process.”
With the ATO focused heavily on tax structures put in place for FPE investment into Australia and the FIRB reviewing all tax advice, investors must have a sound grasp on requirements, according to GT.
“Australia has stringent treaty shopping and anti-avoidance laws; investors should ensure they obtain tax advice from an early stage to ensure compliance with all aspects of Australian tax laws.”
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