Private ruling: Doctrine of sovereign immunity
Date of advice: 4 May 2015
Published: February 2017
Ruling period: Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX

Ruling: Q1: Is the entity exempt from Australian income tax and withholding tax pursuant to the doctrine of sovereign immunity in respect of dividend and interest income derived from its investment in the Australian resident companies? | A1: Yes

Relevant facts and circumstances: The entity The entity was established pursuant to the Act to invest on a commercial basis in a manner that will support economic activity and employment in the country. Under the Act, the entity does not have legal personality. Ownership of the entity is vested in a relevant official on behalf of the government. All income, capital and other benefits received in respect of holdings or investments shall be paid into the entity. Australian investments The income earned by the entity from its Australian investments is dividend and interest income. The entity's Australian investments are XX% or less of the equity in the Australian resident companies.


Reasons for decision: Summary: For Australian income tax and withholding tax purposes it is accepted that the doctrine of sovereign immunity applies to a foreign government or an agency of a foreign government that engage in governmental functions. This approach is consistent with the decision of the British House of Lords in the case I Congreso del Partido [1981] 2 All ER 1064 which held that activities of a trading, commercial or other private law character were not governmental functions. To establish whether the doctrine of sovereign immunity applies to exempt Australian sourced income and gains of a foreign government or an agency of a foreign government from Australian income tax and/or withholding tax, it is necessary to establish the following: 1. that the person making the investment (and therefore deriving the income or gain) is a foreign government or an agency of a foreign government; 2. that the moneys being invested are and will remain government moneys; and 3. that the income or gain is being derived from a non-commercial activity. If these three conditions are satisfied, the Australian sourced income or gains will not be subject to Australian income and/or withholding taxes. Based on the facts provided, the above three conditions are satisfied, accordingly, pursuant to the doctrine of sovereign immunity the entity will be exempt from Australian income tax and withholding tax in respect of dividend and interest income derived from its investment in the Australian resident companies. In reaching this decision consideration was given to ATO Interpretative Decision ATO ID 2002/45 Withholding Tax - Sovereign Immunity .