Private ruling: Doctrine of Sovereign Immunity
Date of advice: 3 November 2015
Published: November 2015
Ruling period: Income year ended 30 June 2016 | Income year ended 30 June 2017 | Income year ended 30 June 2018
Date scheme commenced: During the income year ending 30 June 2016

Ruling: Q1: Is the entity immune from income tax or withholding tax on dividend income and capital gains derived from its investment in approved Australian equities under the common law doctrine of sovereign immunity that meet the following conditions: (a) The entity holds a shareholding of less than 10% of the total shares in each company; and (b) The entity has not appointed a director to the board of directors of each company? | A1: Yes | Q2: Is the entity immune from income tax or withholding tax on trust distributions and capital gains derived from its investment in Australian Real Estate Investment Trusts (REITs) under the common law doctrine of sovereign immunity that meet the following conditions: (a) Each of the entity's unit holding in the Australian REIT constitute less than 10% of the total units in each Australian REIT; and (b) The entity has not appointed a director to the board of directors of the responsible entity or the trustee of each Australian REIT? | A2: Yes

Relevant facts and circumstances: The following description of the scheme is based on the private ruling application and other correspondence provided by the applicant. The entity The entity is a central bank that was established under an act of parliament of the foreign country (the Act) to promote monetary stability and financial stability conducive to the sustainable growth of the economy. Under the Act, the entity is a statutory body wholly owned by the government. The investment income earned by the entity will increase the foreign reserves amount held by the entity. It will be reinvested as part of the mandates in managing the country's foreign reserves and/or will be utilised to support general central bank functions. Australian investments Australian equities The entity makes investments in Australian equities by that meet the following conditions: (a) The entity holds a shareholding of less than 10% of the total shares in each company; and (b) The entity has not appointed a director to the board of directors of each company. The entity receives dividend income and will make gains from the disposal of Australian investments that meet all of the above conditions. Australian REITs The entity makes investments in Australian REITs that meet the following conditions: (a) Each of the entity's unit holding in the Australian REIT constitute less than 10% of the total units in each Australian REIT; and (b) The entity has not appointed a director to the board of directors of the responsible entity or the trustee of each Australian REIT. The entity receives trust distributions and will make gains from the disposal of units in the Australian REITs that meet all of the above conditions.


Reasons for decision: Summary: Based on the facts provided, the three conditions are satisfied. Accordingly, the entity is immune from income tax or withholding tax on dividend income and capital gains derived from its investment in approved Australian equities under the common law doctrine of sovereign immunity that meet the following conditions: (a) The entity holds a shareholding of less than 10% of the total shares in each company; and (b) The entity has not appointed a director to the board of directors of each company. Based on the facts provided, the three conditions are satisfied. Accordingly, the entity is immune from income tax or withholding tax on trust distributions and capital gains derived from its investment in Australian REITs under the common law doctrine of sovereign immunity that meet the following conditions: (a) Each of the entity's unit holding in the Australian REIT constitute less than 10% of the total units in each Australian REIT; and (b) The entity has not appointed a director to the board of directors of the responsible entity or the trustee of each Australian REIT.

Reasons for decision: The Foreign States Immunities Act 1985 (Immunities Act) is an Australian Commonwealth Act which reflects a more restrictive view of the common law doctrine of sovereign immunity. | The ATO follows the principles delineated in the Immunities Act which represents Australia's restrictive approach when considering sovereign immunity claims to taxation matters. | Pursuant to this approach, an entity claiming sovereign immunity must satisfy three conditions: | 1. the entity must be a foreign state, or a separate entity of a foreign state | 2. the monies being invested in the scheme are and will remain government monies, and | 3. the scheme to which the claim applies must not be a commercial transaction. | If these three conditions are satisfied, it has been the long-standing practice of the ATO to not impose the entity's liability to income tax and withholding tax in respect of ordinary income and statutory income on the basis that the entity has satisfied the common law doctrine of sovereign immunity.