Private ruling: Sovereign immunity
Date of advice: 28 August 2025
Published: 1 December 2025
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the ordinary and statutory income derived by the Company 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)? | A1: Yes. | Q2: Is any capital gain or capital loss made by the Company with respect to its interests in the Test Entities disregarded under section 880-115 and 880-120 of the ITAA 1997 respectively? | A2: Yes.

Relevant facts and circumstances: The Company 1. The Company is a private company incorporated in the Foreign Country and has been a resident of the Foreign Country since its incorporation. 2. The Company's immediate and ultimate shareholder is the Government of the Foreign Country. 3. The Company manages the foreign reserves of the Foreign Country's Government. 4. The funds invested by the Company are and will remain beneficially owned by the Government of the Foreign Country. 5. The income derived by the funds invested by the Company is credited to the reserves of the Government of the Foreign Country. 6. The Company's board provides an independent level of oversight on the Company's activities. 7. The Company does not produce or trade non-financial goods and does not provide services that are not financial services. The Company does not actively trade in financial assets and liabilities, operate commercially in financial markets or provide services listed in paragraph 880-130(2)(c) of the ITAA 1997. Investments 8. The Company's investments which are covered by this Ruling are investments in the Test Entitieswhich have the following characteristics: (a) The Company's investments in the Test Entities are membership interests, debt interests or non-share equity interests. (b) The Test Entities are Australian resident companies or managed investment trusts (MITs). (c) The Company derives income from the Test Entities in the form of interest, dividends, trust distributions and capital gains. (d) The Company and, to the best of the Company's knowledge, all members of its sovereign entity group hold collectively less than XX% of the total participation interests in each of the Test Entities. (e) The Company and, to the best of the Company's knowledge, all members of its sovereign entity group would hold collectively less than XX% of the total participation interests in the Test Entities in the circumstances detailed in paragraph 880-105(4)(b) of the ITAA 1997. (f) Neither the Company, nor any members of its sovereign entity group, has involvement in the day to day management of the business of any of the Test Entities. (g) Neither the Company, nor any members of its sovereign entity group, has the right to appoint a director to the Board of Directors of any of the Test Entities. (h) Neither the Company, nor any members of its sovereign entity group holds the right to representation on any investor representative or advisory committee (or similar) of the Test Entities. (i) Neither the Company, nor any members of its sovereign entity group has the ability to direct or influence the operation of the Test Entities outside of the ordinary rights conferred by the equity interest held. (j) The Company's interests, including the Company's interests when combined with the other interests held within its sovereign entity group, do not provide an entitlement to either directly or indirectly determine the identity of any person who make decisions that comprise the control and direction of the Test Entities' operations. (k) 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 Company, or members of the Company's sovereign entity group.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 880-105 | Income Tax Assessment Act 1997 section 880-115 | Income Tax Assessment Act 1997 section 880-120

Reasons for decision: Summary: All of the conditions listed in subsection 880-105(1) of the ITAA 1997 have been satisfied in relation to the Company's investments in the Test Entities. As such, section 880-105 of the ITAA 1997 will apply to the effect that amounts of ordinary and statutory income derived by the Company from its investments in the Test Entities are not assessable and not exempt income for the ruling period. | Detailed Reasoning - Detailed reasoning: All references are to the ITAA 1997 unless otherwise indicated. Subsection 880-105(1) provides that an amount of ordinary income or statutory income of a sovereign entity will be not assessable and not exempt (NANE) if: (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 - Covered Sovereign Entity: 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. | Detailed Reasoning - Sovereign Entity: 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 . Section 960-180 provides that the total participation interest in another entity is the sum of an entity's direct participation interest and indirect participation interest in the other entity at that time. The Government of the Foreign Country holds a total participation interest of 100% in the Company. The Company is not an Australian resident, nor is it a resident trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936 . The Company therefore will meet the definition of a 'sovereign entity' in accordance with paragraph 880-15(c). | Detailed Reasoning - Funded solely by public monies: The phrase 'public monies' is not defined within the legislation. Law Companion Ruling LCR 2020/3 - The superannuation fund for foreign residents withholding tax exemption and sovereign immunity (LCR 2020/3)provides at paragraph 54, that the phrase 'public monies' essentially means monies of a foreign government (or part of a foreign government) held 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. This would ordinarily include general tax revenue, proceeds from the issue of government bonds, the proceeds of privatisations etc. The Company manages the reserves of the Foreign Country's Government. Accordingly, the Commissioner is satisfied that the Company is funded solely by public monies. | Detailed Reasoning - All returns on the entity's investments are public monies: The income derived by the Company from managed investments is credited to the reserves of the Government of the Foreign Country. The funds used by the Company are from the foreign reserves of Foreign Country, and will remain so for the period that the Company holds the investments. Accordingly, all returns from the Company are public monies. | Detailed Reasoning - The entity is not a partnership: The Company is a company and therefore is not a partnership. This condition is therefore satisfied. | Detailed Reasoning - Is the entity a public non-financial entity or public financial entity?: Subsection 880-130(1) 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. An entity is a public financial entity under subsection 880-130(2) 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 The Company does not: • produce or trade non-financial goods • provide services which are not financial services • actively trade in financial assets and liabilities • operate commercially in financial markets, or • provide services listed in paragraph 880-130(2)(c) above. Accordingly, the Company is neither a public non-financial entity, nor a public financial entity under section 880-130. It therefore satisfies the requirement under paragraph 880-125(d). As the Company satisfies each of the requirements in paragraphs 880-125(a) through (d) it is a sovereign entity that is covered by section 880-125 for the purposes of paragraph 880-105(1)(a). | Detailed Reasoning - The income is a return 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), 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. Paragraph 52 of LCR 2020/3 explains that a 'return on' a membership interest, debt interest or non-share equity interest for the purposes of paragraph 880-105(1)(b) can include, dividends, interest, fund payments and revenue gains made on disposals. The Company receives dividends, interest and fund payments from membership interests, debt interests or non-share equity interests in the Test Entities. Therefore, the Company receives amounts which satisfy the requirements of paragraph 880-105(1)(b). | Detailed Reasoning - The income is received from an Australian resident company or MIT: For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(c), it must be received from an entity that is either an Australian resident company or a MIT. All Test Entities are either Australian resident companies or MITs at the relevant times. Therefore, the Company receives income from entities which satisfies the requirements of paragraph 880-105(1)(c). | Detailed Reasoning - Portfolio Interest Test: For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(d), 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 XX month period that began no earlier than XX months before that time and ended no later than that time. The portfolio interest test is outlined in subsection 880-105(4), 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 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. At the relevant times (as required by paragraph 880-105(1)(d)), the Company and its sovereign entity group collectively hold less than XX% of the total participation interests in each of the Test Entities. In addition, the Company and its sovereign entity group collectively hold less than XX% of the total participation interests in the Test Entities in the circumstances detailed in paragraph 880-105(4)(b). | Detailed Reasoning - Influence Test: For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(e), 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) at the income time. Subsection 880-105(6) 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). The Company's interest, when combined with the other interests held within the sovereign entity group, does not provide an entitlement to either directly or indirectly determine the identity of any person who make 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 Company or members of the Company's sovereign entity group. Based upon the above, the Company's sovereign entity group does not have influence of a kind described in subsection 880-105(6) at the income time in the Test Entities and will therefore satisfy the requirements of paragraph 880-105(1)(e). | Detailed Reasoning - Conclusion: As all of the conditions listed in subsection 880-105(1) have been satisfied, section 880-105 will apply to the effect that amounts of ordinary and statutory income derived by the Company from its investments in the Test Entities are not assessable and not exempt income. | Detailed Reasoning - Question 2: Is any capital gain or capital loss made by the Company with respect to its interests in the Test Entities disregarded under section 880-115 and 880-120 of the ITAA 1997 respectively? | Summary: Any capital gain or loss made by the Company with respect to its interests in the Test Entities will be disregarded under sections 880-115 and 880-120 of the ITAA 1997 respectively. | 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. Section 880-120 provides that a sovereign entity disregards a capital loss from a CGT event if, on the assumption that the loss was a capital gain, the capital gain would be disregarded because of section 880-115. As established in Question 1, the Company: • is covered by section 880-125 • holds membership interests, non-share equity interests or debt interests in the Test Entities, and • satisfies the requirements in paragraphs 880-105(1)(c), (d) and (e) in relation to ordinary or statutory income that it will derive from the Test Entities, on the assumptions listed at paragraph 880-115(c). Therefore, any capital gain or loss made by the Company from a CGT event that happens in relation to its interests in the Test Entities, is disregarded under section 880-115 (for capital gains) or section 880-120 (for capital losses).

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | 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 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 ato.gov.au/gaar. | Is the ordinary and statutory income derived by the Company from its interests in the Test Entities not assessable and not exempt income under section 880-105 of the ITAA 1997?