Senators target tax-evasion loophole for foreign ag investors

James Nason, 29/11/2012

A senate committee has called for an extensive review of tax arrangements to ensure foreign entities investing in Australian agriculture pay appropriate levels of tax and do not receive an unfair advantage over Australian investors.

The Senate Rural and Regional Affairs and Transport References Committee has been looking into the Foreign Investment Review Board (FIRB) national interest test since July last year.

Committee chairman Senator Bill Heffernan says the inquiry is grappling with “one of the most significant contemporary issues in Australia's agricultural industry” – that is, how to properly manage and encourage foreign investment for the industry's and the nation's benefit.

He notes the debate is balanced between the significant infrastructure, wealth and job creating benefits brought by foreign investments versus the increasing community concerns that certain recent trends in foreign investment are not necessarily in Australia’s national foreign interest.

In particular concerns heard by the committee have surrounded what is seen as an increasing trend of foreign governments seeking to invest in Australia for food security purposes, and the inadequacies of existing legislation to deal with this emerging trend.

The committee has also heard evidence that tax incentives or loopholes were benefiting foreign investors over Australian investors in the agriculture industry.

In an interim report released today, the committee makes recommendations in relation to two issues – relevant tax arrangements and the out-dated legislative framework surrounding foreign investment in Australian agriculture.

The committee notes that it will address many other issues relating to foreign investment in its final report due in February next year. These include the regulatory framework surrounding foreign investment in Australia, the global context of food security, information gaps regarding foreign investment, the scrutiny and transparency of FIRB in applying the national interest test and the foreign investment review threshold.

After hearing evidence on tax arrangements senators noted that it was “reasonable to conclude” that a sovereign entity investing directly in Australia and exporting for non-commercial purposes, such as for humanitarian reasons, could avoid paying tax in Australia.

The committee has released six recommendations designed to close taxation and legislative loopholes surrounding foreign investment in Australia.

To view the full interim report and more detail on each recommendation click here

Recommendation 1
The committee recommends that in order to prevent tax revenue leakage and market distortions, the government undertake an extensive review of the tax arrangements applying to foreign investments and acquisitions in the agricultural sector.

Recommendation 2
The committee recommends that as part of the broader review outlined in Recommendation 1, the government should review Australia's tax laws that apply to tax exemptions for not-for-profit activities for foreign entities. The review should examine ways to prevent tax revenue leakage when foreign government entities undertake agricultural production in Australia for humanitarian purposes or for food security.

Recommendation 3
The committee recommends that the government require that any non-commercial production from agricultural land and businesses by foreign government entities (including for the purposes of food security) is undertaken within relevant Australian Government foreign aid programs.

Recommendation 4
The committee recommends that as part of the broader review outlined in Recommendation 1, the government should investigate ways of developing more rigorous tax liability arrangements for both government-owned and private foreign entities, particularly in relation to capital gains and passive income. In this regard, further efforts should be considered to limit the scope for foreign investors to use business structures, and other possible loopholes, not available to domestic competitors in order to reduce their tax burden.

Recommendation 5
2.46 The committee recommends that as part of the broader review outlined in Recommendation 1, the Government review the tax barriers for Australian organisations that limit Australian investment in long-term development projects in Australian agriculture. The review should explicitly compare tax arrangements for domestic entities to those faced by potential foreign investors in Australian agriculture. The review should also consider possible reforms of tax regulation to improve incentives for Australian capital investment in agriculture.

Recommendation 6
3.8 The committee recommends that the government undertake a review of the Foreign Acquisitions and Takeovers Act 1975 with the aim of developing proposed amendments that address contemporary issues of foreign investment, particularly in agriculture.
3.9 The review should specifically consider:

• the definition of 'rural land' and 'urban land';
• drawing a distinction between the treatment of rural land and agricultural business; and
• any limitations that the Foreign Acquisitions and Takeovers Act 1975 may place, either explicitly or implicitly, on the Foreign Investment Review Board's ability to effectively review the level and nature of foreign investment activities in Australia.




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