Private ruling: Doctrine of sovereign immunity
Date of advice: 26 June 2015
Published: June 2015
Ruling period: Income year ended 30 June 2016 | Income year ended 30 June 2017 | Income year ended 30 June 2018

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

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The entity The entity's objectives are to achieve and to maintain the financial system pursuant to the law of the country. All income received in respect of holdings or investments shall be paid into the general reserves of the entity. Australian investments The entity has invested in Australia. The income earned by the entity from its Australian investments is interest income.


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 monies being 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, 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 liability to Australian withholding tax in respect of interest income derived from its investment in Australia. In reaching this decision consideration was given to ATO Interpretative Decision ATO ID 2002/45 Withholding Tax - Sovereign Immunity .