Private ruling: Sovereign immunity
Date of advice: 5 February 2026
Published: 30 March 2026
Ruling period: 20XX to 20YY
Date scheme commenced: 20XX

Ruling: Q1: Is the ordinary and statutory income derived by XXXX from its interests in the Test Entities not assessable and not exempt income under subsection 880-105(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: XXXX 1. XXXX is a statutory body corporate established to own and administer assets of the Country X Government (Government). It is a body corporate and a legal person capable of suing and being sued and has the ability to hold the title to movable and immovable property. 2. XXXX directly and indirectly owns 100% of the shares in a number of Country X government corporations including XXXX. XXXX 3. XXXX is a company incorporated in Country X and is a resident of Country X for tax purposes. 4. XXXX was incorporated for the purpose of investing. 5. XXXX does not actively trade in financial assets and liabilities, nor does it operate commercially in financial markets or provide any services listed in subparagraph 880-130(2)(c) of ITAA 1997. 6. XXXX receives its funds from the Government. 7. The sources of Government funds include government revenue. 8. The funds used for the investments are from the foreign reserves of Country X and will remain so for the period that XXXX holds the investment. 9. The moneys invested, and the returns on those moneys are, and will remain funds beneficially owned by the Government. 10. There are no third-party borrowings entered into by the above entities. 11. XXXX is part of a sovereign group (as that term is defined in section 880-20 of the ITAA 1997) consisting of all entities ultimately wholly owned by the Government as well as the Government itself. XXXX's Australia Investments 12. XXXX holds investments in Australian entities (the Test Entities) and it is anticipated that it will hold additional investments in the future. The investments which are covered by this Ruling are investments in the Test Entities which have all of the the following characteristics: (a) XXXX's investments in the Test Entities are membership interests, debt interests or non-share equity interests. (b) The Test Entities are Australian resident companies or managed investment trusts (MITs). (c) XXXX derives income from the Test Entities in the form of interest, dividends, trust distributions and capital gains. (d) XXXX and all members of its sovereign entity group hold collectively less than 10% of the total participation interests in each of the Test Entities. (e) XXXX and all members of its sovereign entity group would hold collectively less than 10% of the total participation interests in the Test Entities in the circumstances detailed in paragraph 880-105(4)(b) of the ITAA 1997. (f) Neither XXXX, nor any members of its sovereign entity group, has involvement in the day to day management of the business of any of the Test Entities. (g) Neither XXXX, nor any members of its sovereign entity group, has the right to appoint a director to the Board of Directors of any of the Test Entities. (h) Neither XXXX, nor any members of its sovereign entity group holds the right to representation on any investor representative or advisory committee (or similar) of the Test Entities. (i) Neither XXXX, nor any members of its sovereign entity group, has the ability to direct or influence the operation of the Test Entities outside of the ordinary rights conferred by the equity interest held. (j) XXXX's interests, including XXXX's interests when combined with the other interests held within its sovereign entity group, do not provide an entitlement to either directly or indirectly determine the identity of any person who make decisions that comprise the control and direction of the Test Entities' operations. (k) No person involved in the control and direction of the Test Entities' operations is accustomed or obliged to act in accordance with the directions, instructions or wishes of XXXX, or members of XXXX's sovereign entity group.

Relevant legislative provisions: Division 880 of the ITAA 1997

Reasons for decision: Summary: The ordinary and statutory income derived by XXXX from its investments in the Test Entities is not assessable and not exempt income due to the of operation subsection 880-105(1) of the ITAA 1997. | Detailed Reasoning - Detailed Reasoning: Section 880-105 provides that amounts of ordinary and statutory income derived by a sovereign entity are not assessable and not exempt income if certain conditions are met. Those conditions are listed in subsection 880-105(1): (a) the sovereign entity is covered by section 880-125; and (b) the amount is a return on any of the following kinds of interest that the sovereign entity holds in another entity (the test entity): i. a membership interest; ii. a debt interest; iii. a non-share equity interest; and (c) the test entity is: i. a company that is an Australia resident at the time (the income time) when the amount becomes ordinary or statutory income of the sovereign entity; or ii. a managed investment trust in relation to the income year in which the income time occurs; and (d) the sovereign entity group of which the sovereign entity is a member satisfies the portfolio interest test in subsection (4) in relation to the test entity: i. at the income time; and ii. throughout any 12-month period that began no earlier than 24 months before that time and ended no later than that time; and (e) the sovereign entity group of which the sovereign entity is a member does not have influence of a kind described in subsection (6) in relation to the test entity at the income time. These conditions are considered below. | Detailed Reasoning - XXXX is a covered sovereign entity: Section 880-125 states: A sovereign entity is covered by this section if it satisfies all of the following requirements: (a) the entity is funded solely by public monies; (b) all returns on the entity's investments are public monies; (c) the entity is not a partnership; (d) the entity is not any of the following: i. a public non-financial entity; ii. a public financial entity (other than a public financial entity that only carries on central banking activities) These conditions are considered below. | Detailed Reasoning - XXXX is a sovereign entity: For an entity to be covered by section 880-125, it must be a sovereign entity. Section 880-15 defines a sovereign entity to be any of the following: (a) a body politic of a foreign country, or part of a foreign country; (b) a foreign government agency; (c) an entity: i. in which an entity covered by paragraph (a) or (b) holds a total participation interest of 100%; and ii. that is not an Australian resident; and iii. that is not a resident trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936 . Section 960-180 provides than an entity's total participation interest in another entity is the sum of: (a) the entity's direct participation interest in the other entity at that time; and (b) the entity's indirect participation interest in the other entity at that time. The Government is a body politic of a foreign country (i.e. Country X). The Government holds a total participation interest of 100% in XXXX. XXXX is not an Australian resident, nor is it a resident trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936 (ITAA 1936). As such, XXXX meets the requirements of being a sovereign entity in accordance with paragraph 880-15(c). | Detailed Reasoning - XXXX is funded solely by public monies: The phrase 'public monies' is not defined and as such takes its ordinary meaning. In the context of Division 880, this phrase essentially means monies raised by a foreign government (or part of a foreign government) for a public purpose which form part of the foreign government's (or part of the foreign government's) equivalent to Australia's Consolidated Revenue Fund ( Roy Morgan Research Pty Ltd v FC of T & Anor [2011] HCA 35). This would ordinarily include general tax revenue, proceeds from the issue of government bonds, the proceeds of privatisation etc. XXXX receives its funds from the Government. The sources of Government funds include government revenue. As such, XXXX is funded solely by public monies. | Detailed Reasoning - All returns on XXXX's investments are public monies: XXXX and its assets are indirectly wholly owned by the Government. As such, the Government is the beneficial owner of all the capital invested and all income that XXXX derives from that capital. The funds used to invest in the Test Entities are from the foreign reserves of Country X and will remain so for the period that XXXX holds the investments. As such, all returns on XXXX's investments will be paid to and remain assets of the Government, making them public monies. | Detailed Reasoning - XXXX is not a partnership: XXXX is a company incorporated under the laws of Country X. It is not a partnership under subsection 6(1) of the ITAA 1936. XXXX therefore satisfies this requirement. | Detailed Reasoning - XXXX is not a public non-financial entity or public financial entity: Subsection 880-130(1) defines the term public non-financial entity: An entity is a public non-financial entity if its principal activity is either or both of the following: (a) producing or trading non-financial goods; (b) providing services that are not financial services. Subsection 880-130(2) defines the term public financial entity: An entity is a public financial entity if any of the following requirements are satisfied: (a) it trades in financial assets and liabilities; (b) it operates commercially in the financial markets; (c) its principal activities include providing any of the following financial services: i. financial intermediary services, including deposit-taking and insurance services; ii. financial auxiliary services, including brokerage, foreign exchange and investment management services; iii. capital financial institution services, including services in relation to assets or liabilities that are not available on open financial markets. XXXX does not produce or trade non-financial goods or provide services that are not financial services. XXXX intends to hold its investment in the Test Entities across a medium to long-term holding period and has not made the investments for the purpose of trading in them. XXXX makes passive investments in the Test Entities for the purpose of preserving and enhancing Country X's foreign reserves (for the benefit of the Government). Therefore, XXXX does not actively trade in financial assets and liabilities, operate commercially in financial markets or engage in the activities contemplated in subparagraph 880-130(2)(c). As such, XXXX does not meet either definition of being a public non-financial or financial entity, satisfying the condition in paragraph 880-125(d). As XXXX satisfies each of the requirements in paragraphs 880-125(a) through (d) it is a sovereign entity that is covered by section 880-125 for the purposes of paragraph 880-105(1)(a). | Detailed Reasoning - XXXX's return is received on a relevant interest in the Test Entities: For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(b), it must be a 'return on' a membership interest, debt interest or non-share equity interest held by the sovereign entity in the Test Entities. Paragraph 52 of LCR 2020/3 The superannuation fund for foreign residents withholding tax exemption and sovereign immunity (LCR 2020/3) explains that a 'return on' a membership interest, debt interest or non-share equity interest for the purposes of paragraph 880-105(1)(b) can include, dividends, interest, fund payments and revenue gains made on disposals. XXXX is required to hold a membership interest, debt interest and/or non-share equity interest in a Test Entity and earn returns from dividends, interest and/or fund payments to satisfy the requirements of paragraph 880-105(1)(b). | Detailed Reasoning - XXXX's income is received from Australian resident companies or managed investment trusts: For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(c), it must be received from an entity that is either i. a company that is an Australian resident at the time (the income time) when the amount becomes ordinary or statutory income of the sovereign entity; or ii. a managed investment trust in relation to the income year in which the income time occurs. A Test Entity must be an Australian resident company or a MIT at the relevant times for XXXX to receive income that satisfies the requirements of paragraph 880-105(1)(c). | Detailed Reasoning - XXXX's sovereign entity group satisfies the portfolio interest test: For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(d), the sovereign entity and the sovereign entity group to which it belongs must satisfy the portfolio interest test in relation to the test entity at both the income time and throughout any 12-month period that began no earlier than 24 months before that time and ended no later than that time. The portfolio interest test is outlined in subsection 880-105(4), which states: A sovereign entity group satisfies the portfolio interest test in this subsection in relation to the test entity at a time if, at the time, the sum of the total participation interests that each member of the group 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 that an 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. Section 880-20 provides the definition of sovereign entity group. Broadly, sovereign entities of the same foreign government will be members of the same sovereign entity group and sovereign entities of the same part of a foreign government will be members of the same sovereign entity group. At the relevant times (as required by paragraph 880-105(1)(d)), XXXX and its sovereign entity group collectively hold less than 10% of the total participation interests in each of the Test Entities. In addition, XXXX and its sovereign entity group collectively hold less than 10% of the total participation interests in the Test Entities in the circumstances detailed in paragraph 880-105(4)(b). As such, paragraph 880-105(1)(d) is satisfied. | Detailed Reasoning - XXXX's sovereign entity group satisfies the influence test: For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(e), at the income time the sovereign entity group to which the sovereign entity belongs must not have influence over the test entity of a kind described in subsection 880-105(6). Subsection 880-105(6) states: A sovereign entity group has influence of a kind described in this subsection in relation to the test entity at the time if any of the following requirements are satisfied at that time: (a) a member of the group: 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 a member of the group (whether those directions, instructions or wishes are expressed directly or indirectly, or through the member 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 880-105(6)(a), assesses whether the sovereign entity group 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 sovereign entity group 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 sovereign entity group, in its own right, holds the ability to approve or veto decisions which go to the control and direction of the test entity. Sub-test 2 of the influence test, as contained in paragraph 880-105(6)(b), assess whether at least one of the relevant decision-making persons of the test entity is accustomed or obliged to act, or might reasonably by expected to act, in accordance with the directions, instruments or wishes of the sovereign entity group. XXXX's interest, when combined with the other interests held within the sovereign entity group, does not provide an entitlement to either directly or indirectly determine the identity of any person who make decisions that comprise the control and direction of the Test Entities' operations. No person involved in the control and direction of the Test Entities' operations is accustomed or obliged to act in accordance with the directions, instructions or wishes of XXXX or members of XXXX's sovereign entity group. Based upon the above, XXXX's sovereign entity group does not have influence of a kind described in subsection 880-105(6) at the income time in the Test Entities and will therefore satisfy the requirements of paragraph 880-105(1)(e). | Detailed Reasoning - Conclusion: As all conditions listed in subsection 880-105(1) have been satisfied, section 880-105 will apply to the effect that amounts of ordinary and statutory income derived by XXXX from its investments in the Test Entities are not assessable and not exempt income.

Does Part IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar . | Question: Is the ordinary and statutory income derived by XXXX from its interests in the Test Entities not assessable and not exempt income under subsection 880-105(1) of the ITAA 1997?