Explanatory Memorandum
(Circulated by authority of the Hon Mark Vaile MP, Minister for Trade)Schedule 5 - Foreign Acquisitions and Takovers
153. This item inserts into subsection 5(1) a definition of foreign government investor, with reference to the actual definition at clause 17F.
154. This item inserts into subsection 5(1) a definition of prescribed foreign government investor with reference to the actual definition at clause 17G.
155. This item inserts into subsection 5(1) a definition of prescribed foreign investor with reference to the actual definition at clause 17E.
156. This item inserts into subsection 5(1) a definition of prescribed sensitive sector with reference to the actual definition at clause 17H.
157. This item amends subsection 13B(1) to extend its application to proposed Part IA (see Item 9) in determining the value of a corporation's total assets, in relation to the application of sections 18 and 26 to prescribed foreign investors or prescribed foreign government investors.
158. This item amends subsection 13B(4) to extend its application to proposed Part IA (see Item 9) in determining the value of a business' total assets, in relation to the application of section 19 to prescribed foreign investors or prescribed foreign government investors.
159. This item amends subsection 13B(5) to extend its application to proposed Part IA (see Item 9) in determining the value of a corporation's total assets, in relation to the application of section 20 to prescribed foreign investors or prescribed foreign government investors.
160. This item amends subsection 13B(6) to extend its application to proposed Part IA (see Item 9) in determining the value of a business' total assets, in relation to the application of section 21 to prescribed foreign investors or prescribed foreign government investors.
161. This item inserts a new Part IA - Exempt Foreign Investments
Clause 17A: Exempt foreign investments in prescribed corporations etc
162. Subclause 17A(1) provides that, for the purposes of section 18, eligible prescribed foreign investors and prescribed foreign government investors are not foreign persons and are exempt from possible action by the Treasurer under this section. Eligibility is determined by reference to subclauses 17B(1) and (2) and 17C(1), as applicable.
163. Subclause 17A(2) provides that, for the purposes of section 20, eligible prescribed foreign investors and prescribed foreign government investors are not foreign persons and are exempt from possible action by the Treasurer under this section. Eligibility is determined by reference to subclauses 17B(1) and (2) and 17C(1), as applicable.
164. Subclause 17A(3) provides that, for the purposes of sections 19 and 21, eligible prescribed foreign investors and prescribed foreign government investors are not foreign persons and are exempt from possible action by the Treasurer under these sections. Eligibility is determined by reference to subclauses 17B(3) and 17C(2), as applicable.
165. Subclause 17A(4) provides that, for the purposes of section 26, eligible prescribed foreign investors and prescribed foreign government investors are not foreign persons and are exempt from the compulsory notification requirements of this section. Eligibility is determined by reference to subclauses 17B(1) and (2) and 17C(1), as applicable.
166. Subclause 17A(5) provides that, as specified, subclauses 17A(1), (2) and (3) do not have effect for the purposes of determining the application of sections 18, 19, 20, 21 and 26 to an entity that is neither a prescribed foreign investor nor a prescribed foreign government investor.
167. The specified circumstances include in determining whether 2 or more persons (whether or not associates under the Act):
- •
- hold an aggregate controlling interest in a corporation;
- •
- together are in a position to control an amount of the voting power in a corporation;
- •
- together hold interests in the issued shares in a corporation;
- •
- together are in a position to determine the policy of a business or corporation.
168. This establishes that a relevant interest held by a prescribed foreign investor or a prescribed foreign government investor is considered in determining whether action could be taken in relation to a non-exempt entity. For example, shares held by a prescribed foreign investor would be relevant in determining whether an acquisition by a non-prescribed foreign investor resulted in a change in the foreign persons exercising control of an Australian business. It is not intended to provide an avenue for action to be taken in relation to eligible investors contrary to subclauses 17A(1), (2), (3) and (4).
Clause 17B: Asset thresholds for exempt investments in prescribed corporations etc - prescribed foreign investors
169. Subclause 17B(1) provides for regulations to be made that determine the value of a corporation's total assets below which a prescribed foreign investor is exempt from the application of sections 18, 20 and 26, in those circumstances where the corporation, or a subsidiary of the corporation, operates wholly or partly in a prescribed sensitive sector in relation to a prescribed foreign investor.
170. The subclause establishes the actual value of a corporation's total assets is to be calculated with regard to whether the corporation is a prescribed corporation within the meaning of:
- •
- paragraph 13 (1) (a), (b), (c), (g) or (h); or
- •
- paragraph 13 (1) (d), (e) or (f):
171. as provided for in relation to those paragraphs.
172. Regulations may determine separate amounts dependent on whether the corporation is a prescribed corporation within the meaning of:
- •
- paragraph 13 (1) (a), (b), (c), (g) or (h); or
- •
- paragraph 13 (1) (d), (e) or (f)
173. Subclause 17B(2) provides for regulations to be made that determine the value of a corporation's total assets below which a prescribed foreign investor is exempt from the application of sections 18, 20 and 26, in those circumstances where the corporation, or a subsidiary of the corporation, does not operate either wholly or partly in a prescribed sensitive sector in relation to a prescribed foreign investor.
174. The subclause establishes the actual value of a corporation's total assets is to be calculated with regard to whether the corporation is a prescribed corporation within the meaning of:
- •
- paragraph 13 (1) (a), (b), (c), (g) or (h); or
- •
- paragraph 13 (1) (d) (e) or (f).
175. as provided for in relation to those paragraphs.
176. Regulations may determine separate amounts dependent on whether the corporation is a prescribed corporation within the meaning of:
- •
- paragraph 13 (1) (a), (b), (c), (g) or (h); or
- •
- paragraph 13 (1) (d), (e) or (f).
177. Subclause 17B(3) provides for regulations to be made that determine the value of a business' total assets below which a prescribed foreign investor is exempt from the application of sections 19 and 21, in those circumstances where the business:
- a)
- is wholly or partly in a prescribed sensitive sector in relation to a prescribed foreign investor; or
- b)
- is neither wholly nor partly in a prescribed sensitive sector in relation to a prescribed foreign investor.
153. The subclause establishes that, in either case, the actual value of a business' total assets is to be calculated with regard to section 13B.
154. Subclause 17B(4) establishes that regulations made under clause 17B may provide for different amounts to be established for different prescribed foreign investors dependant on the kind of prescribed foreign investor, the kind of prescribed sensitive sector concerned (as applicable), the kind of corporation concerned (as applicable), the kind of business concerned (as applicable) and any other matter.
155. Subclause 17B(5) provides that regulations made under clause 17B may provide for a method of indexing an amount.
156. Subclause 17B(6) establishes that subclauses 17B(4) and (5) do not limit the regulations that may be made for the purposes of this clause.
Clause 17C: Asset thresholds for exempt investments in prescribed corporations etc - prescribed foreign government investors
157. Subclause 17C(1) provides for regulations to be made that determine the value of a corporation's total assets below which a prescribed foreign government investor is exempt from the application of sections 18, 20 and 26.
158. The subclause establishes the actual value of a corporation's total assets is to be calculated with regard to whether the corporation is a prescribed corporation within the meaning of:
- •
- paragraph 13 (1) (a), (b), (c), (g) or (h); or
- •
- paragraph 13 (1) (d), (e) or (f):
159. as provided for in relation to those paragraphs.
160. Regulations may determine separate amounts dependent on whether the corporation is a prescribed corporation within the meaning of:
- •
- paragraph 13 (1) (a), (b), (c), (g) or (h); or
- •
- paragraph 13 (1) (d), (e) or (f).
161. Subclause 17C(2) provides for regulations to be made that determine the value of a business' total assets below which a prescribed foreign government investor is exempt from the application of sections 19 and 21. The subclause establishes that the actual value of a business' total assets is to be calculated with regard to section 13B.
162. Subclause 17C(3) establishes that regulations made under clause 17C may provide for different amounts to be established for different prescribed foreign government investors dependant on the kind of prescribed foreign government investor, the kind of corporation concerned (as applicable), the kind of business concerned (as applicable) and any other matter.
163. Subclause 17C(4) provides that regulations made under clause 17C may provide for a method of indexing an amount.
164. Subclause 17C(5) establishes that subclauses 17C(3) and (4) do not limit the regulations that may be made for the purposes of this section.
Clause 17D: Exempt foreign investments in financial sector companies etc
165. Subclause 17D(1) provides that a prescribed foreign investor covered by subclause 17D(5) is exempt from the application of section 18 in relation to a corporation that is a financial sector company.
166. Subclause 17D(2) provides that a prescribed foreign investor covered by subclause 17D(5) is exempt from the application of section 26 in relation to a corporation that is a financial sector company.
167. Subclause 17D(3) establishes that for a prescribed foreign investor to be covered by clause 17D it must satisfy any conditions specified in regulations made under this sub-clause. This sub-clause provides for regulations to be made for this purpose, and allows for regulations to identify classes of prescribed foreign investor in relation to which subclauses 17D(1) and (2) apply.
168. Subclause 17D(4) provides that, as specified, subclauses 17D(1) and (2) do not have effect for the purposes of determining the application of sections 18 and 26 to an entity that is not a prescribed foreign investor.
169. The specified circumstances include in determining whether 2 or more persons (whether or not associates under the Act):
- •
- hold an aggregate controlling interest in a corporation;
- •
- together are in a position to control an amount of the voting power in a corporation;
- •
- together hold interests in the issued shares in a corporation;
- •
- together are in a position to determine the policy of a business or corporation.
170. This establishes that a relevant interest held by a prescribed foreign investor is considered in determining whether action could be taken in relation to a non-exempt entity. For example, shares held by a prescribed foreign investor would be relevant in determining whether an acquisition by a non-prescribed foreign investor resulted in a change in the foreign persons exercising control of an Australian business. It is not intended to provide an avenue for action to be taken in relation to an eligible foreign investor contrary to subclauses 17D(1) and (2).
171. Subclause 17D(5) inserts a meaning for financial sector company, and determines this to be the same as in the Financial Sector (Shareholdings) Act 1998.
Clause 17E: Prescribed foreign investor
172. Subclause 17E(1) establishes that an entity is a prescribed foreign investor if:
- •
- the conditions specified in the regulations are satisfied in relation to the entity; and
- •
- the entity is not a foreign government investor.
173. This subclause provides for regulations to be made for this purpose, and allows for, among other things, classes of prescribed foreign investor to be identified or for all investors that are foreign persons to be specified as prescribed foreign investors. This supports differential treatment of classes of foreign investor in relation to prescribed sensitive sectors (clause 17G), establishment of exemption thresholds (clause 17B) and provision of the exemption in relation to financial sector companies (clause 17D).
174. Subclause 17E(2) provides that the conditions specified in regulations made for the purposes of subclause 17E(1) may include a condition that the entity be:
- •
- a national of a specified foreign country;
- •
- incorporated under the law of a specified foreign country or a specified part of a foreign country;
- •
- constituted or organized under the law of a specified foreign country or a specified part of a foreign country.
175. Subclause 17E(3) establishes that subclause 17E(2) does not limit the regulations that may be made for the purposes of subclause 17E(1).
176. Subclause 17E(4) defines entity to include an individual for the purposes of the clause.
Clause 17F: Foreign government investor
177. Clause 17F establishes that an entity is a foreign government investor if:
- a)
- the entity is a body politic (or part of a body politic) of a foreign country (or part of a foreign country);
- b)
- the entity is controlled by an entity mentioned in paragraph (a); or
- c)
- an entity mentioned in paragraph (a) holds an interest in the entity that specifies the conditions specified in the regulations.
153. This clause provides for regulations to be made specifying the types of interest a foreign government investor may hold in an entity for that entity to be regarded as a foreign government investor.
Clause 17G: Prescribed foreign government investor
154. Clause 17G establishes that an entity is a prescribed foreign government investor if:
- a)
- the entity is a foreign government investor; and
- b)
- the conditions specified in the regulations are satisfied in relation to the entity.
153. This clause provides for regulations to be made for this purpose, and allows for classes of prescribed foreign government investor to be identified. This supports differential treatment of classes of prescribed foreign government investor in relation to the exemption thresholds under clause 17C.
Clause 17H - Prescribed sensitive sector
154. Clause 17H establishes that a kind of business activity is a prescribed sensitive sector in relation to a prescribed foreign investor if the conditions specified in the regulations are satisfied in relation to:
- a)
- the prescribed foreign investor; and
- b)
- the kind of business activity.
208. This clause provides for regulations to be made for this purpose, and allows for specification of the kinds of business activity to comprise a prescribed sensitive sector and to associate different prescribed sensitive sectors with different classes of prescribed foreign investor. This supports the establishment of different exemption thresholds for sensitive and other sectors and for combinations of classes of sensitive sectors and prescribed foreign investors under clause 17B.