The framework for foreign investors to access the 15 year tax concession for an "approved economic infrastructure facility" (or improvement to an economic infrastructure facility) (the Concession) is open for comment, following Treasury's release of a Draft Guidance Note.
While foreign investors will welcome more clarity, and the return (in broad terms) to their previous position before the recent changes to the taxation of infrastructure staples, this will only be for a limited 15 year period and, if the Treasury's proposed process is adopted (the Process), subject to stringent application requirements which could knock out many applicants.
Anyone interested investment in this particular infrastructure asset class should consider commenting on this draft by 17 January 2020. This will likely be the final opportunity to be able to have a say in the shape of the approval process.
Background to the managed investment trust (MIT) tax rate and Concession
The "MIT tax rate journey" began over a decade ago. It has seen foreign investors enjoy MIT tax rates as low as 7.5% but increased to 15%. Following an intense period of review and consultation, culminating in the release of a comprehensive package of legislation (Staples Legislation). The Staples Legislation resulted in an increase to the MIT tax rate to 30% for many stapled structures, subject to certain exceptions.
Under the Concession, qualifying foreign investors will, in broad terms, be able to lock in a 15% MIT withholding tax rate on taxable MIT distributions (rather than the 30% rate which would otherwise apply) for 15 years from the date an asset is first put to use. This is notwithstanding that a stapled structure is being utilised.
The Staples Legislation clearly contemplated the Concession. The Draft Guidance Note now outlines what is needed in order to access the Concession.
The Draft Guidance Note's proposed Process for accessing the Concession
The Treasurer must be satisfied that the facility (or improvement) meets the following criteria (Approval Criteria):
- it is an economic infrastructure facility (ie. infrastructure related to transport, energy, communications or water);
- the estimated capital expenditure of the facility (or the improvement) is $500 million or more;
- the facility (or the improvement) is yet to be constructed;
- the facility (or the improvement) will significantly enhance the long-term productive capacity of the economy (this requires, among other things, that tine infrastructure be "nationally significant infrastructure" within the meaning of the Infrastructure Australia Act 2008); and
- approving the concession for the facility (or the improvement) is in the national interest.
The Draft Guidance Note outlines in some detail the matters which are considered relevant with respect to the Approval Criteria.
The Process requires, amongst other things, that completed applications are submitted to the Treasurer and assessed by Treasury. A detailed application checklist is set out in the Draft Guidance Note.
A final business case also must be provided to Infrastructure Australia for evaluation.
The application needs to be made before construction has commenced in relation to the facility or improvement.
Examples are also provided in the Draft Guidance Note laying out potential timelines and milestones.
What should you do and by when to shape the Process?
Potential applicants should carefully review the terms of the Process as set out in the Draft Guidance Note and make any submissions on its form by 17 January 2020. We would be happy to help you understand the requirements of the Process in relation to any proposed investment, or to assist you in making a submission.