COVID-19: foreign investment rules tightened

The Government considers that key New Zealand assets will be better protected from being sold to overseas owners in a way contrary to the national interest with the passage of the Overseas Investment (Urgent Measures) Bill. Introduced on 14 May 2020, the Bill received its first reading on 14 May 2020 and was referred to the Finance and Expenditure Committee. The Committee reported back to Parliament on 25 May 2020 and the Bill passed its third reading in Parliament on 27 May 2020. The Bill received the Royal assent on 2 June 2020 to become the Overseas Investment (Urgent Measures) Amendment Act 2020 (No 21 of 2020).

The Amendment Act amends the Overseas Investment Act 2005 to ensure that risks posed by foreign investment are effectively managed, particularly during the ongoing economic fallout from COVID-19. Declining business values create the potential for overseas investors to acquire ownership or control of business assets without government scrutiny.

The Government aims to strengthen the overseas investment regime through the Amendment Act by the following three major changes:

• The introduction of a national interest test allows the Government to deny consent to any investment ordinarily screened under the Overseas Investment Act 2005 that is deemed contrary to New Zealand’s national interest. Guidance on what the Government will consider under the national interest test is available on Treasury website www.treasury.govt.nz.
• The introduction of a temporary emergency notification powers allows the Government to review certain controlling investment no ordinarily screened under the Overseas Investment Act. If necessary, the Government is empowered to impose conditions on, prohibit, or dispose of those investments if they are contrary to New Zealand’s national interest. The Minister responsible for the Act is to assess whether the emergency power is over-capturing low-risk transactions, and if so, to consider any available options to mitigate this. This process is to occur after 45 days so as to ensure that sufficient data is available to support any assessments made by the Minister.
• The introduction of a national security and public order call-in power replaces the above emergency notification power when it is removed. The Government is empowered to review certain investments in strategically important businesses that are not ordinarily screened under the Overseas Investment Act, and impose conditions on, prohibit, or dispose of those investments that pose a significant risk to national security or public order.

The Overseas Investment (Urgent Measures) Amendment Act has the concurrent aim of supporting productive foreign investment. It will do this by reducing unnecessary regulatory costs on investors.

The Amendment Act is in two parts. Part 1 amends the Overseas Investment Act while Part 2 amends the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, the Fisheries Act 1996, and the Tax Administration Act 1994.

Part 2, subpart 3 of the Overseas Investment (Urgent Measures) Amendment Act amends the Tax Administration Act 1994 by inserting new cl 39B in sch 7, pt C, subpt 1. This amendment overrides the confidentiality provisions in the Tax Administration Act to allow the Commissioner  to disclose certain sensitive revenue information to the regulator under the Overseas Investment Act 2005 and to a list of public sector agencies that have some connection with the management of national security or public order risks associated with transactions by overseas persons.

Source: New Zealand Legislation

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