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Edited version of your written advice

Authorisation Number: 1013030840840

Date of advice: 22 June 2016

Ruling

Subject: The wholly owned subsidiaries of an offshore entity

Question 1

Do the wholly owned subsidiaries of an offshore entity (the Entity A) satisfy paragraph 275-20(4)(h) of the ITAA 1997?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2017

Year ended 30 June 2018

Year ended 30 June 2019

Year ended 30 June 2020

Year ended 30 June 2021

Year ended 30 June 2022

Year ended 30 June 2023

Year ended 30 June 2024

Year ended 30 June 2025

Year ended 30 June 2026

The scheme commences on:

1 July 2016

Relevant facts and circumstances

The Entity A

The Entity A subsidiaries

The Entity A's objectives and administrative powers

Board of Directors

Governance

Funding

Economic benefits

Assumption

Relevant legislative provisions

Income Tax Assessment Act 1997 section 275-10

Income Tax Assessment Act 1997 section 275-20

Income Tax Assessment Act 1997 section 995-1(1)

Taxation Administration Act 1953 section 12-385 of Schedule 1

Taxation Administration Act 1953 section 12-405 of Schedule 1

Taxation Administration Act 1953 section 12-410 of Schedule 1

Reasons for decision

Question 1

Do the wholly owned subsidiaries of A satisfy paragraph 275-20(4)(h) of the ITAA 1997?

Detailed reasoning

Subdivision 12-H of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) deals with the Pay As You Go (PAYG) withholding obligations of a 'managed investment trust' that makes a 'fund payment' to a recipient with an address outside Australia, or if the managed investment trust is authorised to make the payment to a place outside Australia (sections 12-385 and 12-410 of Schedule 1 to the TAA 1953).

A 'fund payment' is defined in section 12-405 of Schedule 1 to the TAA 1953 as that part of the net income of the trust for an income year other than dividends, interest, royalties, a capital gain or capital loss from a CGT asset that is not taxable Australian property or amounts that are not from an Australian source.

Where there is an obligation to withhold, the applicable withholding rate is determined by reference to whether the country or territory in which the recipient's address or place for payment is located is an information exchange country (subsection 12-385(3) of Schedule 1 to the TAA 1953).

Section 275-10 of the ITAA 1997 sets out the requirements to determine whether a particular trust is a, 'managed investment trust' in relation to an income year.

Among other requirements, paragraph 275-10(3)(e) of the ITAA 1997 states:

the trust satisfies, in relation to the income year:

To satisfy subsection 275-20(1) of the ITAA 1997, subsection 275-20(3) of the ITAA 1997 prescribes certain calculation rules. One of the rules relates to entities covered by subsection 275-20(4) of the ITAA 1997.

Under paragraph 275-20(4)(h) of the ITAA 1997, one such kind of entity is:

an investment entity that satisfies all of these requirements:

Therefore, the wholly owned Subsidiaries of the Entity A must meet each of the following requirements to satisfy paragraph 275-20(4)(h) of the ITAA 1997:

The entity is an investment entity

The Entity A aims to develop, invest and manage Government reserve funds and other property assigned to it by the Government in accordance with the policies, plans and programs approved by the Government.

For this reason, the Entity A (and by extension it's wholly owned Subsidiaries) were established to invest and manage the Government reserve funds and other property assigned to the Entity A.

The common law meaning of 'investment' is essentially the dictionary definition. In Melville v Mutual Life and Citizens Assurance Co Ltd (1980) 31 ALR 649, the Federal Court interpreted subsection 39(2) of the Life Insurance Act 1945 (Cth). Lockhart J stated (at 653):

In Inland Revenue Commissioners v Rolls-Royce Ltd [1944] 2 All ER 340, MacNaghten J interpreted a provision in the Finance (No. 2) Act 1939 (UK). His Lordship stated:

As the acquisition of assets for money is what each of the wholly owned Subsidiaries of the Entity A will do, they will each be an investment entity.

The entity is wholly-owned by one or more foreign government agencies, or is a wholly-owned subsidiary of one or more foreign government agencies

Subsection 995-1(1) of the ITAA 1997 states:

foreign government agency means:

For the period of this Private Ruling, each of the wholly owned Subsidiaries will be wholly owned directly or indirectly by the Entity A at all times.

The Entity A is a Government Authority.

The Entity A is managed by a Board of Directors which shall consist of a Chairman and Deputy Chairman and a number of members appointed by the Government.

The Entity A shall have a Chief Executive Officer appointed by the Government

As the Entity A is entirely controlled by the Government, it is an authority of the government of a foreign country under paragraph (b) of the definition of 'foreign government agency'.

Accordingly, each of the wholly owned Subsidiaries of the Entity A is wholly-owned by one or more 'foreign government agencies', or is a wholly-owned subsidiary of one or more foreign government agencies.

The entity is established using only the public money or public property of the foreign government concerned

This condition requires that the entity must be established by using public, or governmental, monies or property rather than private funds or property, or funds or property accruing to the benefit of individuals in their private capacity.

All monetary, immovable, and movable assets, the various documents, and lists and deposits of the accounts related to the investment of the Government reserves, shall pass from the Government to the Entity A.

It therefore follows that the only funds available to the Entity A to establish its wholly owned Subsidiaries must come from the Government, or must be the proceeds of sale of its existing investments or the income generated by such investments.

Accordingly, each of the wholly owned Subsidiaries of the Entity A was established using only the public money or public property of the foreign government.

All economic benefits obtained by the entity have passed, or are expected to pass, to the foreign government concerned

The Entity A's mission statement states that its mission is to invest, manage and grow the Government's reserves to create long term value for the Government and future generations.

The Entity A shall aim at developing, investing and managing the Government reserve funds and other property assigned to it by the Government in accordance with the policies, plans and programs approved by the Government.

As the Entity A is entirely funded by the Government and is entirely controlled by the Government it follows that all income and gains arising on the investments made by the Entity A, (including by the wholly owned Subsidiaries) are for the sole and exclusive benefit of the Government.

No person other than the Government has the right to use, enjoy or dispose of the income and gains which arise on such investments by the Entity A or it's wholly owned Subsidiaries.

Accordingly, all economic benefits obtained by each of the wholly owned Subsidiaries of Entity A will pass, or are expected to pass, to the Government.

Conclusion

The wholly owned Subsidiaries of the Entity A will satisfy paragraph 275-20(4)(h) of the ITAA 1997.


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