Private ruling: Sovereign Immunity
Date of advice: 12 December 2014
Published: December 2016
Ruling period: Year ended 30 June 201X | Year ended 30 June 201X | Year ended 30 June 201X
Date scheme commenced: Year ended 30 June 201X

Ruling: Q1: Is Entity A exempt from Australian income and withholding taxes under the doctrine of sovereign immunity for: (a) interest received from Australian fixed income securities; and (b) dividends received and gains made by it from the disposal of the shares? | A1: Yes.

Relevant facts and circumstances: 1. Entity A was established by a foreign government in accordance with a statute. 2. Entity A was established with moneys of the foreign government and continues to receive and pay moneys to the foreign government. 3. Entity A is managed and controlled by the foreign government. 4. Entity A and its assets are wholly-owned by the foreign government. 5. On liquidation of Entity A, any remaining moneys and/or assets will remain assets of the foreign government. 6. Entity A owns fixed income securities from which it derives Australian sourced interest income. 7. Entity A owns shares in Australian companies from which it receives dividends. Entity A will also make gains on the disposal of those shares. 8. Entity A is not in the business of money lending. 9. Each shareholding held by Entity A in each Australian company is less than 10% of the total shares on issue for each company. 10. Entity A is not entitled to and has not appointed a director to the Board of Directors of any of the Australian companies in which it holds shares.


Reasons for decision: Summary: For Australian income tax purposes it is accepted that the doctrine of sovereign immunity applies to foreign governments 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 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) 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 is being derived from a non-commercial activity. If these three conditions are satisfied, the Australian sourced income and/or gains will not be subject to Australian income and/or withholding taxes. Based on the facts provided, the three conditions above are satisfied, thus, the Australian sourced interest and dividend income and gains made by Entity A from the disposal of shares in Australian companies will not be subject to Australian income and withholding taxes under the doctrine of sovereign immunity.