Private ruling: Withholding taxes
Date of advice: 20 February 2023
Published: 17 April 2023
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 under paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes.

Relevant facts and circumstances: 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 Australian investments a. All investments are listed on the Australian Securities Exchange (ASX). b. The Fund holds less than 10% of the total participation interests in each Australian company. c. 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. d. 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. e. 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. f. Neither the Funds, nor any related party, has the ability to direct or influence the operation of the Australian company outside of the ordinary rights conferred by the equity interest held. Other

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, 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 the Fund: | 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). 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 provides the following benefits to its members: The circumstances in which a member of the Fund can receive benefits from the Fund are consistent with those of 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 Funds are considered to be a provident, benefit, superannuation or retirement funds. 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 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 Funds 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 established under a foreign law enacted in a foreign country. Entity A represents the Fund and is responsible for investing and managing its assets. The Fund is managed and administered by Entity A with board members who are not Australian residents. 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 Funds 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 or set aside for the Funds 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 Entity A or set aside for the Entity A. Therefore, the Funds 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 Funds will receive dividend and interest income from its Australian equity investments. These amounts will be paid by Australian resident companies. 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 hold less than 10% of the total participation interests in each Australian company covered by this 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, have involvement in the day to day management of the business of any of the Australian companies. 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. 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. d. Neither the Fund, nor any related party, has the ability to direct or influence the operation of the Australian company outside of the ordinary rights conferred by the equity interest held. e. The Fund do not hold any veto rights on security holder votes. Based upon the above, the Commissioner accepts that Entity A on behalf of the Funds 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 Entity A 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.

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 Fund. | Entity A manages the assets of the Fund separately from all other assets it manages. | Entity A and the Fund are organs of the State and are not legally separate entities | Contributions by government employees and employers the Fund are maintained by Entity A in an administrative account called an Investment Account. | The income distributed to the Fund retains the same character as the income of the relevant underlying investment made by Entity A. | The assets of the Fund managed by Entity A can only be used for the benefit of the Fund and cannot be used for any other governmental purposes. | The Fund is created and governed by statute and comprises a number of plans. | By law, Entity A provides for the investment of all assets of the Funds. | The Fund provides broadly similar benefits to members and their dependents. | Employees are entitled to receive retirement benefits if they are a member of the relevant Fund when they reach retirement age, their membership has vested, and they have not withdrawn from being a member of the Fund. The various requirements for vesting vary from plan to plan. | In summary, members of the Fund are entitled to the following benefits: | The Fund has invested in Australian equity investments. These equity investments have the following characteristics: | The Fund was established and is maintained only to provide benefits for individuals who are not Australian residents. | 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 Entity A or set aside for Entity A. | The Fund is a resident of a foreign country for tax purposes. | The Fund A 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. | The central management and control of Entity A on behalf of the Funds is carried on outside of Australia by entities none of whom are Australian residents | No amount paid to Entity A or set aside for the Entity A 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 Entity A or set aside for the Fund. | Survivor benefits for dependents of a member