Private ruling: Withholding taxes
Date of advice: 4 April 2022
Published: June 2022
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the Fund excluded from liability to withholding tax on its interest, dividend and non-share dividend income derived from its current investments listed in Appendix 1 under paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes.

Relevant facts and circumstances: Entity A Entity A is an investment manager created by statute. It is created to make and manage the investments of the State, including investing the assets of the Retirement Systems. Entity A manages the funds of the Retirement Systems separately from all other funds which it invests. The Fund The Fund is an administrative account of Entity A and consists of the funds of all the Retirement Systems. These funds consist of employee contributions, employer contributions, and investment income. Each Retirement System holds shares in the Fund, which represent a percentage ownership in the pool of investments. Retirement Systems then purchase or sell shares in the Fund based on the fair value of the underlying assets of the first business day of each month. The Fund is not a commingled or collective trust as utilised by the private sector and is instead a record of aggregated and segregated accounts created by statute for the various Retirement Systems to realise investment and plan allocation efficiencies, and to achieve the benefits of investing on a large-scale basis. Money within the Fund managed by Entity A can only be used for the benefit of the Retirement Systems and cannot be used for any other governmental purpose. The Retirement Systems Each of the Retirement Systems by law is administered by the RSA. By law, Entity A provides for the investment of all funds of the Retirement Systems. The Retirement Systems do not hold any investments outside of the Fund as managed by Entity A. Each of the Retirement Systems is created and governed by statute. Each of the retirement funds are created and established in the State Treasury. The State Treasurer is the custodian of the Retirement Systems by statute, and Entity A accounts and manages all funds and holdings of the Retirement Systems. The Retirement Systems provide broadly similar benefits to members and their dependents. Membership to the relevant Retirement System is compulsory and a condition of employment by the relevant employee. Each retirement system has its own rules and exceptions, but broadly all employees of a particular class who are classified as such and are regularly compensated are members under each of the Retirement Systems. Employees are entitled to receive retirement benefits if they are a member of the relevant Retirement System, they reach retirement age, their membership has vested, and they have not withdrawn from being a member of the relevant Retirement System. The various requirements for vesting vary from plan to plan. Members of the Retirement System are entitled to the following benefits: a. Retirement benefits (calculated using a formula within the plan rules accounting for years of service, age, and salary). b. Retirement benefits, being the amounts from the defined contribution portion of the relevant Retirement plan c. Death benefits to be paid to the member's estate d. Survivor benefits for dependents e. Disability benefits f. A return of employee contributions plus interest if withdrawing from the Fund A return of contributions to a Retirement System can be paid or transferred to another Retirement System or retirement savings vehicle. A withdrawal of contributions that is not rolled over into a retirement savings vehicle is subject to tax implications in the foreign State. Australian investments The Fund has invested in Australian equity investments (as detailed in Appendix 1). These equity investments have the following characteristics ('Equity Characteristics'): a. All investments are listed on the Australian Securities Exchange (ASX). b. The Fund holds less than 1% of the total participation interests in each Australian company, trust or real estate investment trust (REIT). c. The Fund would hold less than 1% of the total participation interests in each Australian company, trust or REIT in the circumstances detailed in paragraph 128B(3CC)(b) of the ITAA 1936. d. Neither the Fund, nor any related party of the Fund, has involvement in the day to day management of the business of any of the Australian companies, trusts or REITs. e. Neither the Fund, nor any related party of the Fund, has the right to appoint a director to the Board of Directors of the Australian company or equivalent role in a trust or REIT. f. Neither the Fund, nor any related party, holds the right to representation on any investor representative or advisory committee (or similar) of the Australian company, or equivalent role in a trust or REIT. g. Neither the Fund, nor any related party, has the ability to direct or influence the operation of the Australian company, trust or REIT outside of the ordinary rights conferred by the equity interest held. The Fund does not have influence of a kind described in subsection 128B(3CD) of the ITAA 1936 over any of the Test Entities. h. The Fund only holds rights to vote in proportion to its equity interest in each Australian company, trust or REIT. Other The Fund's head office is not located in Australia. The Fund was established and is maintained only to provide benefits for individuals who are not Australian residents. There is no indication that there is any contemplation of the Fund ending at a defined point in time and there is no expectation that the fund will be discontinued. An amount paid to the Fund or set aside for the Fund has not been and cannot be deducted under the Income Tax Assessment Act 1997 (ITAA 1997). A tax offset has not been allowed nor would be allowable for any amount paid to the Fund or set aside for the Fund. The Fund is a resident of a foreign country for tax purposes. The Fund is exempt from taxation in its country of residence. The Fund does not derive income covered by Subdivision 880-C of the ITAA 1997 or Division 880 of the Income Tax (Transitional Provisions) Act 1997 from its Australian investments.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1936 paragraph 128B(3)(jb) | Income Tax Assessment Act 1936 section 128D | Income Tax Assessment Act 1997 section 118-520 | Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision: Summary: Section 128B of the ITAA 1936 imposes liability to withholding tax on income derived by a non-resident that consists of dividend income (subsection 128B(1) of the ITAA 1936), interest income (subsection 128B(2) of the ITAA 1936) as well as other income prescribed in that section. Subsection 128B(3) of the ITAA 1936 notes that section 128B of the ITAA 1936 will not apply to prescribed categories of income. Relevantly, paragraph 128B(3)(jb) of the ITAA 1936 states: (jb) income that: (i) is derived by a non-resident that is a superannuation fund for foreign residents; and (ii) consists of interest, or consists of dividends or non-share dividends paid by a company that is a resident; and (iii) is exempt from income tax in the country in which the non-resident resides; | Detailed Reasoning - The Fund is a non-resident: The Fund is not a resident of Australia for tax purposes. Therefore, the Fund will satisfy this requirement. | Detailed Reasoning - The Fund is a superannuation fund for foreign residents: Superannuation fund for foreign residents is a defined term in the ITAA 1936. Section 6 of the ITAA 1936 states: superannuation fund for foreign residents has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997. Subsection 995-1 of the ITAA 1997 sets out the following: superannuation fund for foreign residents has the meaning given by section 118-520. Section 118-520 of the ITAA 1997 states the following: (1) A fund is a superannuation fund for foreign residents at a time if: (a) at that time, it is: (i) an indefinitely continuing fund; and (ii) a provident, benefit, superannuation or retirement fund; and (b) it was established in a foreign country; and (c) it was established, and is maintained at that time, only to provide benefits for individuals who are not Australian residents; and (d) at that time, its central management and control is carried on outside Australia by entities none of whom is an Australian resident. (2) However, a fund is not a superannuation fund for foreign residents if: (a) an amount paid to the fund or set aside for the fund has been or can be deducted under this Act; (b) a tax offset has been allowed or is allowable for such an amount. Consequently, for the Fund to be considered a superannuation fund for foreign residents for the purposes of paragraph 128B(3)(jb) of the ITAA 1936, it must be established that: | Detailed Reasoning - The Fund is an indefinitely continuing fund: There is no indication that there is any contemplation of the Fund ending at a defined point in time and there is no expectation that the fund will be discontinued. Therefore, it is accepted that the Fund is an indefinitely continuing fund. | Detailed Reasoning - The Fund is a provident, benefit, superannuation or retirement fund: ATO Interpretative Decision ATO ID 2009/67 Income Tax: Superannuation fund for foreign residents (ATO ID 2009/67) provides guidance on the meaning of the phrase "provident, benefit, superannuation or retirement fund": None of the four descriptors 'provident', 'benefit', 'superannuation' or 'retirement fund' in subparagraph (a)(ii) of the definition of 'superannuation fund for foreign residents' in section 118-520 of the ITAA 1997 are defined. The terms have, however, been the subject of judicial consideration. The courts have held that for a fund to be a 'provident, benefit, superannuation or retirement fund', the fund's sole purpose must be to provide superannuation benefits, that is, benefits to a member upon the member reaching a prescribed age or upon their retirement, death or other cessation of employment ( Scott v. FC of T (No 2) (1966) 14 ATD 333; (1966) 10 AITR 290, per Windeyer J; Mahony v. FC of T (1967) 14 ATD 519, per Kitto J; Walstern Pty Ltd v. Commissioner of Taxation (2003) 138 FCR 1; 2003 ATC 5076; (2003) 54 ATR 423, per Hill J and Cameron Brae Pty Ltd v. Federal Commissioner of Taxation (2007) 161 FCR 468; 2007 ATC 4936; (2007) 67 ATR 178, per Stone and Allsop JJ). Having regard to the terms of the deed of the Plan, it is considered that the Plan is a 'provident, benefit, superannuation or retirement fund' as that phrase has been interpreted by the relevant authorities. The sole purpose of the Plan is the provision of benefits to, or in respect of, participating employees who: • cease their employment upon or after reaching retirement age (age 60) • cease their employment after the satisfaction of certain service requirements • cease their employment because of death or total and permanent disability, or • reach age 70, whether or not they have ceased employment. Therefore, the Plan satisfies subparagraph (a)(ii) of the definition of 'superannuation fund for foreign residents' in section 118-520 of the ITAA 1997. The above establish that for a fund to qualify as a provident, benefit, superannuation or retirement fund, it must have the sole purpose of providing retirement benefits or benefits in other allowable contemplated contingencies (such as death, disability or serious illness). The Fund consists of a number of Retirement Systems. To determine whether the Fund is a pension fund, the rules of each of the pension plans must be considered to ensure that the benefits provided under those plans are retirement benefits or other allowable contemplated contingencies. The Retirement Systems provide the following benefits to their members: The circumstances in which a member of the Fund can receive benefits from the Fund are consistent with those of a provident, benefit, superannuation or retirement fund. As both the objective of the fund and the actual operation of the fund have the sole purpose of providing retirement benefits or benefits in alignment with other contemplated contingencies, the Fund is considered to be a provident, benefit, superannuation or retirement fund. Therefore, the Fund will satisfy this requirement. | Detailed Reasoning - The Fund was established in a foreign country: The Fund was established in a foreign country. Therefore, the Fund will satisfy this requirement. | Detailed Reasoning - The Fund was established and maintained only to provide benefits for individuals who are not Australian residents: The Fund was established in a foreign country to provide retirement benefits for various public sector employees. It is considered that the possibility of a very small number of members being returned residents or becoming Australian residents after ceasing eligible employment is incidental and should not be taken to conclude that the Fund, in this case, has not been established and is not maintained only to provide benefits for non-residents, based on the rules and operation of the Fund. Therefore, the Fund will satisfy this requirement. | Detailed Reasoning - The Fund's central management and control is carried on outside Australia by entities none of whom is an Australian resident: Paragraphs 20 and 21 of Taxation Ruling TR 2008/9 Income tax: meaning of 'Australian superannuation fund' in subsection 295-95(2) of the Income Tax Assessment Act 1997 (TR 2008/9) states in respect of the central management and control (CM&C) of a superannuation fund: 20. The CM&C of a superannuation fund involves a focus on the who, when and where of the strategic and high level decision making processes and activities of the fund. In the context of the operations of a superannuation fund, the strategic and high level decision making processes includes: • formulating the investment strategy for the fund; • reviewing and updating or varying the fund's investment strategy as well as monitoring and reviewing the performance of the fund's investments; • if the fund has reserves - the formulation of a strategy for their prudential management; and • determining how the assets of the fund are to be used to fund member benefits. 21. The other principal areas of operation of a superannuation fund that form part of the day-to-day or operational side of the fund's activities will not constitute CM&C. These activities do not form part of the CM&C of the fund because they are not of a strategic or high level nature. Rather, these activities are of a more formalistic or administrative nature. Examples of such activities include the acceptance of contributions that are made on a regular basis, the actual investment of the fund's assets, the fulfilment of administrative duties and the preservation, payment and portability of benefits. Furthermore, Taxation Ruling TR 2018/5 Income tax: Central Management and Control test of residency (TR 2018/5) states: 10.Central management and control refers to the control and direction of a company's operations. It does not refer to a physical location in which the control and direction of a company is located, and may ultimately be exercised in more than one location. 11. The key element in the control and direction of a company's operations is the making of high-level decisions that set the company's general policies, and determine the direction of its operations and the type of transactions it will enter. The Fund is administered by the RSA and invested by Entity A. Entity A represents the Fund and is responsible for investing and managing its assets. Members of Entity A's Board must be residents of the foreign State. Entity A's head office is not located in Australia. Based on the above, it is reasonable to conclude that the central management and control of the Fund occurs outside of Australia by entities that are not Australian residents. Therefore, the Fund will satisfy this requirement. No amount paid to the fund or set aside for the fund has been or can be deducted under the ITAA 1997 and no tax offset has been allowed or is allowable for such an amount An amount paid to the Fund or set aside for the Fund has not been and cannot be deducted under the ITAA 1997. A tax offset has not been allowed nor would be allowable for any amount paid to the Fund or set aside for the Fund. Therefore, the Fund will satisfy this requirement. | Detailed Reasoning - Consists of interest or dividend and/or non-share dividends paid by a company that is a resident: Paragraph 128B(3)(jb) of the ITAA 1936 will only apply to interest, or to dividends and non-share dividends paid by Australian resident companies. The Fund will receive dividend and interest income from its Australian equity investments. These amounts will be paid by a company that is an Australian resident to the Fund. Therefore, the Fund will satisfy this requirement. | Detailed Reasoning - Is exempt from income tax in the country in which the non-resident resides: The Fund is exempt from taxation in its country of residence. Therefore, the Fund will satisfy this requirement. | Detailed Reasoning - Subsection 128(3CA) of the ITAA 1936: The Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 introduced extra requirements that must be met for paragraph 128B(3)(jb) of the ITAA 1936 to apply. Generally, these extra requirements apply to income derived from 1 July 2019. Relevantly: i. The Fund must satisfy the 'portfolio interest test' in relation to the test entity (subsection 128B(3CC) of the ITAA 1936) ii. The Fund must satisfy the 'influence test' (subsection 128B(3CD) of the ITAA 1936) in relation to the test entity, and iii. The income cannot otherwise be non-assessable non-exempt income of the Fund because of: a. Subdivision 880-C of the ITAA 1997, or b. Division 880 of the Income Tax (Transitional Provisions) Act 1997 . | Detailed Reasoning - The Fund satisfies the 'portfolio interest test': Subsection 128B(3CC) of the ITAA 1936 states: A superannuation fund satisfies the portfolio interest test in this subsection in relation to the test entity at a time if, at that time, the total participation interest (within the meaning of the Income Tax Assessment Act 1997 ) the superannuation fund holds in the test entity: (a) is less than 10%; and (b) would be less than 10% if, in working out the direct participation interest (within the meaning of that Act) that any entity holds in a company: (i) an equity holder were treated as a shareholder; and (ii) the total amount contributed to the company in respect of non-share equity interests were included in the total paid-up share capital of the company. The Fund holds less than 1% of the total participation interests in each Australian company, trust or real estate investment trust (REIT) covered by the Ruling. The Fund therefore satisfies the 'portfolio interest test' in respect of its Australian investments. | Detailed Reasoning - The Fund satisfies the 'influence test': Subsection 128(3CD) of the ITAA 1936 states: A superannuation fund has influence of a kind described in this subsection in relation to the test entity at a time if any of the following requirements are satisfied at that time: (a) the superannuation fund: (i) is directly or indirectly able to determine; or (ii) in acting in concert with others, is directly or indirectly able to determine; the identity of at least one of the persons who, individually or together with others, make (or might reasonably be expected to make) the decisions that comprise the control and direction of the test entity's operations; (b) at least one of those persons is accustomed or obliged to act, or might reasonably be expected to act, in accordance with the directions, instructions or wishes of the superannuation fund (whether those directions, instructions or wishes are expressed directly or indirectly, or through the superannuation fund acting in concert with others). As such, there are two distinct sub-tests within the influence test. Sub-test 1 of the influence test, as contained in paragraph 128B(3CD)(a) of the ITAA 1936, assesses whether the Fund is able to determine the identity of at least one of the persons who, individually or together with others, makes or is reasonably expected to make, decisions comprising the control and direction of the test entity's operations. This includes situations where the Fund is able to act in concert with others to determine the identity of a relevant decision-maker in the test entity. Sub-test 1 also extends to situations where the Fund, in its own right, holds the ability to approve or veto decisions which go to the control or direction of the test entity. Sub-test 2 of the influence test, as contained in paragraph 128B(3CD)(b) of the ITAA 1936, assesses whether at least one of the relevant decision-making persons of the test entity is accustomed or obliged to act, or might reasonably be expected to act, in accordance with the directions, instructions or wishes of the Fund. Relevantly, in respect of the investment listed in the relevant facts and circumstances to this Ruling: a. Neither the Fund, nor any related party of the Fund, has involvement in the day to day management of the business of any of the Australian companies, trusts or REITs. b. Neither the Fund, nor any related party of the Fund, has the right to appoint a director to the Board of Directors of the Australian company or equivalent role in a trust or REIT. c. Neither the Fund, nor any related party, holds the right to representation on any investor representative or advisory committee (or similar) of the Australian company, or equivalent role in a trust or REIT. d. Neither the Fund, nor any related party, has the ability to direct or influence the operation of the Australian company, trust or REIT outside of the ordinary rights conferred by the equity interest held. e. the Fund only holds rights to vote in proportion to its equity interest in each Australian company, trust or REIT. Based upon the above, the Commissioner accepts that the Fund does not have influence of a kind described in subsection 128B(3CD) of the ITAA 1936. | Detailed Reasoning - Otherwise non-assessable non-exempt: The income received by the Fund will not be non-assessable non-exempt income because of Subdivision 880-C of the ITAA 1997 or Division 880 of the Income Tax (Transitional Provisions) Act 1997 . | Detailed Reasoning - Conclusion: The Fund is excluded from withholding tax in relation to interest, dividend and non-share dividend income derived from its current Australian equity investments.

The central management and control of the Fund is carried on outside of Australia by entities none of whom are Australian residents | No amount paid to the Fund or set aside for the Fund has been or can be deducted under this Act, and | No tax offsets have been allowed or would be allowable for an amount paid to the Fund or set aside for the Fund. | Survivor benefits for dependents of a member