Private ruling: International issues - sovereign immunity
Date of advice: 24 July 2025
Published: 22 September 2025
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the ordinary and statutory income derived by Entity A from its interest 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.

Relevant facts and circumstances: Overview of Entity A 1. Entity A was established by the Constitution of Country A ( the Constitution ). 2. Entity A is the central bank of Country A as per an Act of Country A ( the Act ). 3. Certain articles contained in the Act provide the nature and purpose of Entity A. 4. Entity A is a legal entity under the public law. 5. The registered address of Entity A is in Country A. 6. Entity A has the powers of an administrative authority in accordance with the Act. 7. The highest body of management of Entity A is the Board. 8. The Board is appointed by the government of Country A. 9. The profit of Entity A shall be used to replenish its reserve fund and other budgeted funds, and the remaining probit shall be transferred to the budget of Country A. 10. Entity A is exempt from tax in Country A. 11. Entity A is not a partnership. Functions of Entity A 12. The primary objective of Entity A is the maintenance of price stability. In addition, Entity A works to ensure financial stability and the sound operation of the financial system in Country A. 13. In accordance with its primary objective as set out in the Act, Entity A shall: a. Set and implement monetary policy b. Issue banknotes and coins c. Manage the circulation of currency d. Supervise the activities of entities operating in the financial market e. Set macroprudential policy, and f. Carry on other activities pursuant to the Act. 14. The 'other activities' referred are detailed in the Act and include: a. The preparation and submission of draft legislation b. The operation of payment systems c. The registering of representative offices of foreign banks and financial institutions operating within Country A, and d. Engaging in investment and commercial activities insofar as is necessary to provide for its own operations. 15. Entity A issues reports on the financial situation of Country A including policy information as required by the Act. Sovereign Entity Group For the purpose of applying Division 880 of the ITAA 1997, Entity A is considered to form part of a sovereign entity group as set out in section 880-20 of the ITAA 1997. Entity A, as the central bank of Country A, will from part of a sovereign entity group including Country A and any entities in which the Government of Country A either directly or indirectly holds 100% of the participation interests. Australian Investments 16. Entity A's holding of Australian investments constitute a part of the official foreign exchange reserves. 17. Entity A invests the international reserves in accordance with the principles of its reserve management policy and subject to investment opportunities and the situation on the relevant markets. 18. Entity A invests into Australia through certain custodian. 19. Entity A's Australian investments are managed internally by equity portfolio managers, who are contractually obligated to seek to maintain the publicly listed equity investments to reflect the S&P ASX 200 index as closely as possible. 20. At all relevant time, Entity A is and has been, the beneficial owner of the Australian publicly listed equities, held by a custodian or sub-custodian pursuant to an agreement and Entity A is therefore entitled to any and all dividend income from the holdings. 21. Entity A has equity investment that are Australian resident companies or Managed Investment Trusts ( the Test Entities ). The Test Entities all have the following characteristics: a. All of the Test Entities are Australian Securities Exchange ( ASX ) listed. b. Entity A and all members of its sovereign entity group hold collectively less than 10% of the total participation interest in each of the Test Entities. c. Entity A and all members of its sovereign entity group would hold collectively less than 10% of the total participation interest in the Test Entities in the circumstances detailed in paragraph 880-105(4)(b) of the ITAA 1997. d. Neither Entity A, 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. e. Neither Entity A, 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. f. Neither Entity A, 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. g. Neither Entity A, not 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 interest held. h. Entity A's interest in the Test Entities do not provide it with 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. i. Entity A's interest, 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. j. 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 Entity A or members of its sovereign entity group.

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

Reasons for decision: Summary: All of the conditions listed in subsection 880-105(1) of the ITAA 1997 have been satisfied in relation to Entity A'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 Entity A from the Test Entities will be not assessable and not exempt income. | Detailed Reasoning - Detailed reasoning: Section 880-105 of the ITAA 1997 provides that amounts of ordinary and statutory income derived by a sovereign entity are not assessable and not exempt income if certain conditions are met. Those conditions are listed in subsection 880-105(1) of the ITAA 1997: (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. | Detailed Reasoning - Entity A is a covered sovereign entity: Section 880-125 of the ITAA 1997 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). | Detailed Reasoning - Entity A is a sovereign entity: For an entity to be covered by section 880-125 of the ITAA 1997, it must be a sovereign entity. Section 880-15 of the ITAA 1997 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. | Detailed Reasoning - Country A is a foreign country.: Entity A is the central bank of Country A, established by the Constitution, and is a 'public legal entity'. It performs a number of government functions including issuing currency, managing monetary policy, and managing the foreign reserves. These activities are all done on behalf of Country A and Entity A is accountable to the government of Country A. Entity A is an agency of Country A, having been established by Country A to undertake central banking activities. Therefore, Entity A is 'an authority of the government of a foreign country' as per the definition outlined in paragraph 995-1(1)(b) of the ITAA 1997 and a 'foreign government agency' under paragraph 880-15(b) of the ITAA 1997. Entity A meets the requirement of being a sovereign entity in accordance with section 880-15 of the ITAA 1997. | Detailed Reasoning - Entity A is a 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. Entity A was endowed with government monies on its establishment. Entity A's holdings of Australian assets constitute part of official foreign exchange reserves. The monies to make these investments in Australia originates from monies owned and controlled by the government Country A. Therefore, Entity A is funded solely by public monies. | Detailed Reasoning - All returns on Entity A's investments are public monies: The Act outlines what Entity A does with its profits. Entity A uses its income to cover the necessary costs of its operations. The generated profit is allocated to its reserve fund and to other funds created from this profit, and for other uses within Entity A's budget. Any remaining profits are transferred by Entity A to the State budget. All returns on investments are retained by Entity A in its reserves accounts or transferred to the general budget of the State. As a result, all returns on Entity A's investments can be considered public monies. | Detailed Reasoning - Entity A is not a partnership: The legal status of Entity A is defined by the Constitution and the Act as a public law entity. Therefore, Entity A is not a partnership. Entity A is not a public non-financial entity or public financial entity (other than a public financial entity that only carries on central banking activities) 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. The principal activity of Entity A is the maintenance of price stability. Entity A is not a public non-financial entity as it does not produce, trade, nor provide non-financial goods or services. Such activities are managed by private companies, or the State (participating in different structures either through companies or as a regulator). Therefore, Entity A does not meet the definition of a public non-financial entity in subsection 880-130(1) of the ITAA 1997. Entity A does operate in financial markets, however these activities are not commercial in nature and their purpose is not for private profit but fulfilment of Entity A's mission as the central bank of Country A. Therefore, Entity A does not meet the definition of a public financial entity in subsection 880-130(2) of the ITAA 1997. However, even if Entity A was considered to undertake any of the activities in subsection 880-130(2) of the ITAA 1997, subparagraph 880-125(d)(ii) of the ITAA 1997 states that public financial entities that only carry on central banking activities are not excluded from being a covered sovereign entity. Paragraph 81 of the Law Companion Ruling LCR 2020/3 The superannuation fund for foreign residents withholding tax exemption and sovereign immunity ( LCR 2020/3 ) lists the following as being considered as 'central banking activities': • monetary policy development • issuing national currency • acting as custodian of international reserves, and • providing banking services to government. Broadly, the Act outlines the functions of Entity A as: • Setting monetary policy • Issuing and managing the circulation of currency • Supervising the activities of entities operating within the financial market, and • Setting macroprudential policy. The above activities are consistent with Entity A being an entity that only carries on central banking activities. As such, Entity A passes the condition in paragraph 880-125(d) of the ITAA 1997. As Entity A satisfies each of the requirements in paragraphs 880-125(a) through (d) of the ITAA 1997, it is 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 - Entity A's return is received 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. As detailed in paragraph 4.37 of the Explanatory Memorandum to the Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 ( the EM ), a 'return on' a membership interest, debt interest, or non-share equity interest for the purposes of paragraph 880-105(1)(b) of the ITAA 1997 will include: • dividends - including non-share dividends and dividends that pass through a managed investment trust ( MIT ) • interest - including interest that passes through a MIT • fund payments made by a MIT (other than fund payments that are attributable to non-concessional MIT income), and • revenue gains made on the disposal of an interest in the test entity - including revenue gains that pass through a MIT. The Test Entities are entities in which Entity A holds an equity interest and earns returns in the form of dividends. Therefore, Entity A will receive amounts which satisfy the requirements of paragraph 880-105(1)(b) of the ITAA 1997. | Detailed Reasoning - Entity A's income is received 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. The Test Entities are ASX listed Australian resident companies at the relevant times. Therefore, Entity A receives income from entities which satisfy the requirements of paragraph 880-105(1)(c) of the ITAA 1997. | Detailed Reasoning - Entity A's sovereign entity group satisfies the portfolio intertest 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. Entity A is part of the sovereign entity group of Country A. To the best of Entity A's knowledge, at the relevant times (as required by paragraph 880-105(1)(d) of the ITAA 1997), Entity A, and its sovereign entity group collectively, holds less than 10% of the total participation interests in each of the Test Entities. In addition, Entity A and its sovereign entity group collectively, would hold less than 10% of the total participation interests in the Test Entities in the circumstances detailed in paragraph 880-105(4)(b) of the ITAA 1997. Therefore, the portfolio interest test in subsection 880-105(4) of the ITAA 1997 is satisfied. | Detailed Reasoning - Entity A's sovereign entity group does not have influence of a kind described in subsection (6) in relation to the Test Entities at the income time: 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). There are two distinct sub-tests within the influence test. Sub-test 1 of the influence test, 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. Entity A'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 make decisions that comprise the control and direction of the Test Entities' operations. Furthermore, Entity A'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 makes decisions that comprise the control and direction of the Test Entities' operations. Sub-test 2 of the influence test, 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. 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 Entity A or members of its sovereign entity group. Based upon the above, the sovereign entity group of Entity A does not have influence of a kind described in subsection 880-105(6) of the ITAA 1997 and will, therefore, satisfy the requirements of paragraph 880-105(1)(f) of the ITAA 1997.