Private ruling: Sovereign Immunity
Date of advice: 9 October 2025
Published: 24 November 2025
Ruling period: 1 July 20xx to 30 June 20yy
Date scheme commenced: 1 July 20xx

Ruling: Q1: Is the Foreign Department on behalf of the XYZ Fund (together referred to as 'the Fund') excluded from liability to income tax and withholding tax under the common law doctrine of sovereign immunity on any income and capital gainsderived from its interests in the Test Entities for the period up to 30 June 20XX? | A1: Yes. | Q2: Is the ordinary and statutory income derived by the Fund from its interests in the Test Entities not assessable and not exempt income under section 880-105 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A2: Yes. | Q3: Is any capital gain made by the Fund with respect to its interests in the Test Entities disregarded under section 880-115 of the ITAA 1997? | A3: Yes.

Relevant facts and circumstances: XYZ Fund 1. The XYZ Fund was created to support governmental functions. 2. Any spending of the balance of the XYZ Fund must be in support of a governmental purpose. 3. Country X is responsible for all investments made by the Fund. 4. The Fund provides funding for a public purpose. 5. All funds shall be appropriated for the public purpose. 6. Prior to 20yy, the XYZ Fund functioned legally as a subsidiary of Foreign Department. The legal entity that the assets were held under was Foreign Department. Foreign Department 7. Foreign Department administers and monitors compliance with certain governmental programs. Australian investments 8. The XYZ Fund's investments are registered in the name of the XYZ Fund or are registered in the nominee name of the XYZ Fund's custodian, and are held in the XYZ Fund's name by the custodian. Certain physical securities are held in the XYZ Fund's name. 9. The Fund has invested in listed Australian securities (both company shares and trust units (including Managed Investment Trusts (MITs)) and received distributions of dividends, trust distributions (including MIT fund payments) and interest from those investments. The investments which are covered by this Ruling are investments in the Test Entities which have all the characteristics listed at Fact 10 and 11 below. 10. The equity interests that are covered by this Ruling are investments in the Test Entities held by the Fund which have all the following characteristics: a) All securities are listed on the Australian Securities Exchange (ASX) or another recognised stock exchange. b) The Fund, and its related party, collectively hold less than 10% of the total participation interests in the circumstances detailed in 880-105(4)(b) of the ITAA 1997. c) Neither the Fund, nor any related party, has any involvement in the day to day management of the business of any of the Test Entities. d) Neither the Fund, nor any related party, has any right to representation on the board of directors of any of the Test Entities. e) Neither the Fund, nor any related party, has any right to representation on any investor representative or advisory committee (or similar) of any Test Entity. f) Neither the Fund, nor any related party, has the ability to direct or influence the operation of the Test Entities outside of the ordinary rights conferred by the interest held. g) the Fund's interests in the Test Entities do not provide it with an entitlement to either directly or indirectly determine the identity of any person who makes decisions that comprise the control and direction of the Test Entities' operations. h) 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 the Fund. 11. The debt interests that are covered by this Ruling are investments in the Test Entities held by the Fund which have all the following characteristics: The debt securities provide no rights to representation, no voting rights, and no ability to influence the Test Entity. a) The debt securities have broad financial covenants, and do not allow the Fund to have any influence or control over the debt issuer's management. The covenants are in accordance with industry standard. b) The debt securities do not provide any right or option for conversion to equity at any time. c) The debt interests do not otherwise give the Fund any other influence in the Test Entities.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 880

Reasons for decision: Summary: The Fund is immune from income and withholding tax under the common law doctrine of sovereign immunity on any income or capital gains derived from its interests from the start of the Ruling period to 30 June 20XX. | Detailed Reasoning - Detailed reasoning: Prior to the commencement of Division 880 of the ITAA 1997 on 1 July 2019 , 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 engages 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. When determining whether the doctrine of sovereign immunity applies to provide immunity from Australian income tax and/or withholding tax on Australian sourced income and gains, it is necessary to establish the following: 1. that the person making the investment (and therefore deriving the income) is a foreign government or an agency of a foreign government 2. that the monies invested are and will remain government monies, and 3. that the income or gain is being derived from a non-commercial activity. If these three conditions are satisfied, then the income or gains will not be subject to Australian income tax and/or withholding tax. Condition 1: A foreign government or agency of a foreign government Country X is an independent, sovereign state. For the relevant period of the ruling, the XYZ Fund was Foreign Department's subsidiary. The XYZ Fund was created to support governmental functions. All funds spent by the XYZ Fund must be in support of certain governmental functions. The above factors all lead to the conclusion that the Fund is an agency and separate entity of a foreign state, satisfying this requirement. Condition 2: Monies are and will remain government monies In line with the principle that sovereign immunity applies to foreign states performing only governmental functions, an entity claiming sovereign immunity must establish that the monies being invested in the scheme are and will remain government monies. The XYZ Fund provides funding for a public purpose. All funds shall be appropriated for the public purpose. All the XYZ Fund's assets were legally held by Foreign Department prior to 20yy. The XYZ Fund is an agency of the Country X Government. Therefore, all returns on the Fund's investments are public monies. For these reasons, this condition is satisfied as the monies invested and income derived from the investments is and will remain government monies. Condition 3: The income or gain is being derived from a non-commercial activity When determining whether the doctrine of sovereign immunity applies to provide immunity for Australian sourced income and gains from Australian income tax and/or withholding tax, it is necessary to establish that the income or gain is being derived from a non-commercial activity. As noted in ATO Interpretive Decision ATO ID 2002/45 Withholding Tax: Sovereign Immunity (ATO ID 2002/45), whether an operation or activity is a commercial transaction will depend on the facts of each case. As a guide, a commercial transaction is generally considered to be an activity concerned with the trading of goods and services, such as buying, selling, bartering, transportation, and includes the carrying on of a business. A passive investment is more likely to be considered a non-commercial transaction. The Fund is not in the business of trading in equity and debt securities with the intent of deriving profits from the buying and selling of securities. The relevant investments covered by this Ruling are those held by the Fund in Australian equity and debt interests. These investments exhibit the characteristics set out in the Facts of this Ruling. Accordingly, the Fund's investments are non-commercial transactions and are performed as part of governmental functions. | Detailed Reasoning - Conclusion: As each of the above conditions are met, the Fund is immune from income and withholding tax under the common law doctrine of sovereign immunity on any income or capital gains derived from its Australian investments for the period from the start of the ruling period to 30 June 20XX. | Detailed Reasoning - Question 2: Is the ordinary and statutory income derived by the Fund from its interests in the Test Entities not assessable and not exempt income under section 880-105 of the ITAA 1997? | Summary: The income derived by the Fund from the interests held is not assessable income and not exempt income due to the operation of section 880-105 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 ('NANE') 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 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; 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 - Foreign Department and the XYZ Fund are covered sovereign entities: 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. Foreign Department and the XYZ Fund are sovereign entities 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 a 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 . A 'foreign government agency' is defined in subsection 995-1(1) of the ITAA 1997 as: (a) the government of a foreign country or of part of a foreign country; or (b) an authority of the government of a foreign country; or (c) an authority of the government of part of a foreign country. Section 960-180 of the ITAA 1997 provides that 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. Country X is a foreign country. The XYZ Fund was created by Country X as a fund to support Country X governmental functions. All the XYZ Fund's assets were legally held by the Foreign Department prior to 20yy. Foreign Department is an agency of Country X. Neither the Foreign Department nor the XYZ Fund are government-administered superannuation funds. Foreign Department and the XYZ Fund meet the requirements of being sovereign entities as defined in section 880-15 of the ITAA 1997. The Fund 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 of the ITAA 1997, 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 privatisations etc. The XYZ Fund was created by Country X as a fund to support Country X governmental functions. The Fund provides funding for a public purpose. As stated above, Foreign Department's purpose is managing and investing the XYZ Fund. As such, Foreign Department and the XYZ Fund are funded solely by public monies. All returns on the Fund's investments are public monies The returns are used to support Country X governmental functions. Therefore, all returns on the Fund's investments are public monies. Foreign Department and the XYZ Fund are not public non-financial or financial entities Subsection 880-130(1) of the ITAA 1997 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) of the ITAA 1997 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 financial services in relation to assets or liabilities that are not available on open financial markets. LCR 2020/3 provides that a public non-financial entity is determined by: 75. 'Principal' is not defined and, as such, takes its ordinary meaning having regard to the purpose and context in which it appears. The Macquarie Dictionary defines principal as '1. first or highest in rank, importance, value, etc.; chief; foremost...'. The principal activity of an entity, for the purposes of subsection 880-130(1), is therefore its chief or foremost activity. 76. Whether an entity is producing or trading non-financial goods and/or providing services that are not financial services is a question of fact. The meaning of public non-financial entity is further explained in Explanatory Memorandum to the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 : 4.27 ... They also include public non-profit institutions engaging in market production (such as hospitals, schools, or colleges) if they are separate institutional units and charge economically significant prices. Foreign Department invested money allocated on behalf of Country X and distributes money for public purposes. Foreign Department does not produce or trade in non-financial goods or provide non-financial services. As such, they are not public non-financial entities as defined in subsection 880-130(1) of the ITAA 1997. Foreign Department and the XYZ Fundare not in the business of trading in equity and debt securities with the intent of deriving profits from the buying and selling of securities. Foreign Department invests under a legislated mandate. Based on the circumstances, the Commissioner accepts that Foreign Department and the XYZ Fundare not public non-financial entities or public financial entities under subsection 880-130(2) of the ITAA 1997. Therefore, the Fund is considered a sovereign entity that is covered by section 880-125 of the ITAA 1997 for the purposes of paragraph 880-105(1)(a) of the ITAA 1997. | Detailed Reasoning - The Fund receives returns 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) of the ITAA 1997, 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. The Fund invested in the Test Entities, which are Australian resident companies and MITs. The Fund holds shares, units and debt interests in the Test Entities. The Fund receives income from these interests. As such, the Fund will receive amounts which satisfy the requirements of paragraph 880-105(1)(b) of the ITAA 1997. | Detailed Reasoning - The Fund receives income 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) of the ITAA 1997, 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. As previously outlined, the Test Entities from which the Fund derives its ordinary and statutory income are all Australian resident companies or MITs. As such, the Fund receives income from an entity which satisfies the requirements of paragraph 880-105(1)(c) of the ITAA 1997. | Detailed Reasoning - The Fund'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) of the ITAA 1997, the sovereign entity and the sovereign entity group to which it belongs must satisfy the portfolio interest test in relation to the test entities 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) of the ITAA 1997, 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 that 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 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. Section 880-20 of the ITAA 1997 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. The Fund's sovereign entity group includes all entities that are wholly owned by Country X. With respect to the equity interests in the Test Entities, the Fund holds significantly less than 10% of the participation interests in the Test Entity. To the best of the Fund's knowledge, its sovereign entity group as a whole holds less than 10% of the participation interests in the Test Entity. As such, the Fund's sovereign entity group satisfies the requirements of paragraph 880-105(d) of the ITAA 1997 with respect to each Test Entity. | Detailed Reasoning - The Fund's sovereign entity group do not have influence of a kind described in subsection (6): For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(e) of the ITAA 1997, 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) of the ITAA 1997. Subsection 880-105(6) of the ITAA 1997 states: A *sovereign entity group 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) 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) of the ITAA 1997, 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 or direction of the test entity. Sub-test 2 of the influence test, as contained in paragraph 880-105(6)(b) of the ITAA 1997, 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 sovereign entity group. The Fund's interests in the Test Entities do not provide them with an entitlement to either directly or indirectly determine the identity of any person who makes decisions that comprise the control and direction of the Test Entities' operations. Furthermore, the Fund's interests, when combined with the other interests held by members of its sovereign entity group, do not provide an entitlement to either directly or indirectly determine the identity of any person who makes 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 the Fund or members of the Fund's sovereign entity group. Based upon the above, the sovereign entity group of the Fund does not have influence of a kind described in subsection 880-105(6) of the ITAA 1997 and, therefore, satisfies the requirements of paragraph 880-105(1)(f) of the ITAA 1997. | Detailed Reasoning - Conclusion: Section 880-105 of the ITAA 1997 will apply to amounts of ordinary and statutory income derived by the Fund's interests in the Test Entities. | Detailed Reasoning - Question 3: Is any capital gain made by the Fund with respect to its interests in the Test Entities disregarded under section 880-115 of the ITAA 1997? | Summary: Any capital gain made by the Fund with respect of its investments is disregarded under section 880-115 of the ITAA 1997 for the period from 1 July 20XX onwards (with the ruling providing a ruling period of X years). | Detailed Reasoning - Detailed reasoning: Section 880-115 provides that a sovereign entity disregards a capital gain from a CGT event that happens in relation to a CGT asset if: (a) the sovereign entity is covered by section 880-125; and (b) the CGT asset is a membership interest, non-share equity interest or debt interest in another entity; and (c) the requirements in paragraphs 880-105(1)(c), (d) and (e) would be satisfied, on the assumptions that: (i) the capital gain were an amount of ordinary income or statutory income; and (ii) the amount mentioned in subparagraph (i) became ordinary income or statutory income of the sovereign entity immediately before the time the CGT event happened; and (iii) references in those paragraphs to the test entity were references to the other entity mentioned in paragraph (b) of this section. As established in Question 2, the Fund: (a) is covered by section 880-125 of the ITAA 1997 (b) holds membership interests or debt interests in the Test Entities, and (c) satisfies the requirements in paragraphs 880-105(1)(c), (d) and (e) of the ITAA 1997 in relation to ordinary or statutory income that it will derive from the Test Entities, on the assumptions listed at paragraph 880-115(c).. As such, the Fund will disregard any capital gain made in respect of the interests in the Test Entities for period from 1 July 20XX onwards (with the ruling providing a ruling period of X years).

Other Relevant Facts: 12. Foreign Department is not in the business of trading in equity and debt securities with the intent of deriving profits from the buying and selling of securities, and instead is tasked solely with furthering its purpose of serving Country X. | 13. Foreign Department is not in the business of providing non-financial goods and services. | 14. The XYZ Fund's principal office is located in Country X. | 15. The XYZ Fund does not have a legislated termination date. The XYZ Fund can only be liquidated or dissolved by a formal Act by the legislative body. | 16. Foreign Department was created by legislation. There is currently no intention to abolish Foreign Department. | 17. Foreign Department is not a partnership. | 18. Foreign Department is a resident of Country X for the purposes of Country X taxation law. | 19. Foreign Department is exempt from Country X income taxation. | 20. Amounts paid to, or set aside for, Foreign Department have not been and cannot be deducted under the ITAA 1997. | 21. Foreign Department has not been allowed a tax offset or a tax offset is not allowable for an amount that has been paid to it. | Question 1: Is the Fund excluded from liability to income tax and withholding tax under the common law doctrine of sovereign immunity on any income and capital gainsderived from its interests in the Test Entities for the period up to 30 June 20XX?