Private ruling: Sovereign Immunity
Ruling period: Year ending 31 December 2011 | Year ending 31 December 2012 | Year ending 31 December 2013 | Year ending 31 December 2014
Date scheme commenced: 1 January 2011

Ruling: Q1: Is the entity exempt from withholding tax on distributions of income (including Australian source interest and fund payments within the meaning of section 12-405 of the Tax Administration Act 1953 ), to which it is presently entitled, by virtue of its interest in an Australian managed investment trust (Fund), under the common law principle of sovereign immunity? | A1: Yes

Relevant facts and circumstances: 1. The entity forms part of a foreign government (Government) and satisfies the definition of foreign government agency under subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). 2. The entity wholly owns a subsidiary (Trustee). The Trustee was established to manage assets entrusted by the Government and instrumentalities of the Government. 3. The Trustee was established with share capital contributed by the Government. 4. 4. The entity entered into an investment management agreement with the Trustee under which the entity entrusts the foreign exchange reserves of the Government (the Assets) to the Trustee. The Trustee manages the Assets for the entity and is the legal owner of these Assets while the entity is the beneficial owner of the Assets. 5. Under the agreement, the entity may demand payment of the profits from asset management by giving prior notice to the Trustee. If the entity does not make a demand for payment, the profits from asset management are reinvested by the Trustee on behalf of the entity Investment in the Fund 6. The Trustee, on behalf of the entity, is proposing to acquire 5% interest in the Fund (Investment in the Fund). 7. The Fund qualifies as a managed investment trust pursuant to section 12-400 of the Taxation Administration Act 1953 (TAA 1953). 8. The entity expects to derive from the Investment in the Fund: · fund payments as defined in section 12-405 in Schedule 1 of the TAA 1953; · interest income; and · capital gains on disposal of units in the Fund. 9. The income and gains from the Investment in the Fund will be used to fund and support functions of the Government. 10. Apart from the Investment in the Fund, the Trustee and the entity have no other investment in the Fund and have no intention of increasing their investment in the Fund (directly or indirectly). 11. The Trustee and the entity and members of their committees, board of directors and employees currently do not hold a seat on the board of directors of the Fund and will not hold a seat as a result of the Investment in the Fund. Assumptions 12. The entity will be liable to Australian income tax on the interest income and fund payments derived from the Investment in the Fund, and capital gains upon disposal of units in the Fund. 13. No other exemption will apply to the entity to exempt the entity from its liability to Australian income tax.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 128B | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Subsection 104-10(4) | Income Tax Assessment Act 1997 Section 840-805 | Income Tax Assessment Act 1997 Subsection 995-1(1) | Tax Administration Act 1953 Section 12-400 | Tax Administration Act 1953 Section 12-405 | Tax Administration Act 1953 Subsection 12-405(1) Further issues for you to consider | When considering your request for a private ruling, we have limited our answer to the questions raised in your application. This ruling does not provide the Commissioner's view on other matters including whether the taxpayer is the beneficial owner of relevant assets under management by the Trustee or other entities.

Reasons for decision: Detailed Reasoning - Issue 1 Question 1: 1. The Trustee, on behalf of the entity, expects to derive fund payments and interest income from the Investment in the Fund and will be liable to withholding tax under section 840-805 of the ITAA 1997 and section 128B of the ITAA 1936 upon receipt of these payments. 2. The taxation legislation does not provide a specific exemption for foreign governments. However, the Australian Taxation Office administrative practice is to treat certain income derived from within Australia by foreign governments from the performance of government functions as exempt from Australian income tax based on the doctrine of sovereign immunity. 3. Pursuant to ATO ID 2002/45, it is necessary to determine the following in order to establish whether sovereign immunity applies to exempt the fund payments and interest income from Australian withholding tax: · that the entity making the investment (and therefore deriving the income) is a foreign government or an agency of a foreign government; · that the moneys being invested are and will remain government moneys; and · that the income is being derived from a non-commercial activity | Detailed Reasoning - Entity making the investment is a foreign government or an agency of a foreign government: 4. The applicant has advised that the entity is a foreign government agency as defined under subsection 995-1(1) of the ITAA 1997. | Detailed Reasoning - Moneys being invested are and will remain government moneys: 5. The Assets entrusted to the Trustee which are used to invest in the Fund are sourced from the Government and the income and gains from the Investment in the Fund will be used to fund and support governmental functions. Therefore, the Assets are considered 'government moneys'. 6. The entity is the beneficial owner of the Assets. As the entity is an arm of the Government the Assets will remain 'government moneys'. | Detailed Reasoning - Income is being derived from a non-commercial activity: 7. ATO ID 2002/45 provides a portfolio holding in a company (i.e. a holding of less than 10% or less of equity in a company) will generally be accepted as non-commercial activity. ATO ID 2002/45 also highlights that it is necessary to consider the nature of the activity conducted by the foreign government and its instrumentality when determining whether an activity is non-commercial. 8. The Trustee, on behalf of the entity, will acquire 5% interest in the Fund, the Trustee and the entity and members of their committees, board of directors and employees are not represented on the board of the Fund and will not be represented as a result of the Investment in the Fund. Therefore, the Trustee and the entity do not have sufficient influence over the Fund. | Detailed Reasoning - Conclusion: 9. The entity will be exempt from liability to Australian withholding tax on the interest income and fund payments derived from the Investment in the Fund under the international doctrine of sovereign immunity. | Detailed Reasoning - Issue 2 Question 1: 10. Subsection 12-405(1) of the TAA 1953 specifically excludes dividends, royalties, interest payments and capital gains from being fund payments. 11. Pursuant to section 104-10 of the ITAA 1997 CGT event A1 will occur as a result of the Trustee disposing units in the Fund on behalf of the entity. A capital gain will arise if the capital proceeds from the disposal exceed the cost base (see subsection 104-10(4) of the ITAA 1997). 12. In accordance with the explanation above, the entity will not be liable to income tax on capital gains derived upon disposal of part or all of their Investment in the Fund under sovereign immunity.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Is the entity exempt from income tax on capital gains from the disposal of its interest in the Fund under the common law principle of sovereign immunity? | Does Part IVA apply to this ruling?: Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable. | 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 first 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 www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.