Edited version of private advice

Authorisation Number: 1052382956741

Date of advice: 30 April 2025

Ruling

Subject: Superannuation fund for foreign residents - withholding tax

Question 1

Is the Fund exempt from withholding tax on interest paid on its Australian debt investments held in its own name and legal holding under Article X of the Double Tax Convention (DT Convention)?

Answer 1

Yes.

Question 2

Is the Fund exempt from withholding tax on interest paid by Australian resident companies on dividends paid by Australian resident companies from investments held through the Umbrella Fund and its sub-funds under Article X of the DT Convention?

Answer 2

Yes.

Question 3

Is the Fund exempt from withholding tax on dividends paid by Australian resident companies, and on dividends paid by REIT/MITs from investments held through the Umbrella Fund and its sub-funds under Article Y of the DT Convention?

Answer 3

Yes.

Question 4

Is the Fund exempt from withholding tax on dividends paid by REIT/MITs held in its own name and legal holding under Article Y of the DT Convention?

Answer 4

Yes.

This ruling applies for the following period:

1 January 20XX to 31 December 20XX

The scheme commenced on:

1 January 20XX

Relevant facts and circumstances

The Fund

The Fund is a statutory fund established under legislation in Country A (The Act).

The Fund was established and resides outside of Australia.

The Fund operates a number or pension plans. Each plan is independent with separate accounts.

The object of the Fund is to provide for members in their old age, invalidity and death.

The Fund is governed by the Board of Directors, comprised of elected representatives for both the employees and their employers.

The Fund holds investments in various countries including Australia, with an Investment Committee elected by the Board of Directors to oversee investments.

All management and investment decisions of the Fund are undertaken outside of Australia by the Fund's Board of Directors and Investment Committee, none of whom are residents of Australia.

The Fund does not carry on a business through permanent establishment situated in Australia nor does it perform independent personal services from a fixed base in Australia.

The Fund is treated as a company for tax purposes in Country A, where it is exempt from tax.

The Fund holds some investments directly in its own name and legal holding, and some through an Umbrella Fund and its sub-funds.

The Fund is the sole investor and holds all units in the Umbrella Fund and its sub-funds.

The Umbrella Fund and its sub-funds are not subject to income tax in Country A.

Australian Investments

The Fund has invested into Australian equities and debt instruments under its own name and legal holding, upon which it derives income. The Fund also invests in corporate bond, Real Estate Investment Trust (REIT), Managed Investment Trust/Attribution Managed Investment Trust (MIT) and common stock investments held through the Umbrella Fund and its sub-funds.

The Fund is not involved in the day-to-day management of the Australian investment entities and has no rights to appoint any person to any board, committee or similar, either directly or indirectly, in these entities.

The Fund has no ability to directly influence the operation of the Australian entities outside of the ordinary rights conferred by the equity interests held.

The Fund holds less than 10% of each Australian investment entity and therefore holds less than 10% of the voting power in these entities.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 128B

International Tax Agreements Act 1953 subsection 3AAA(1)

International Tax Agreements Act 1953 subsection 5(1)

Convention between Australia and the Avoidance of Double Taxation with respect to Taxes and Income, with Protocol

Reasons for decision

Question 1

Summary

Yes, Article X of the DT Convention applies to exempt the Fund from withholding tax on interest paid on Australian debt investments held in the Fund's own name and legal holding.

Detailed Reasoning

DT Convention - application to taxes on dividend and interest income

Generally, non-residents who derive Australian dividend or interest income are liable to pay withholding tax on that income ( section 128B of the Income Tax Assessment Act 1936 (ITAA 1936) and subsections 128B(1)-(5) of the ITAA 1936).

However, in determining liability to Australian tax on Australian source income derived by a non-resident, it is necessary to consider not only the income tax laws but also any applicable Convention or Double Taxation Agreement contained in the Agreements Act.

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the Income Tax Assessment Act 1997 (ITAA 1997) so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

As the Fund meets the requirements of the relevant Article B of the DT Convention the Convention will apply to all taxes imposed on income and in particular applies to Australian income tax.

Section 128B of the ITAA 1936 imposes liability to withholding tax on dividend, interest and royalty income derived by non-residents. As such, withholding tax payable in respect to dividends and interest paid to non-residents is considered to be an Australian income tax and are covered by the DT Convention.

DT Convention - application to the Fund

In order for the DT Convention to apply, per the stipulations of the Convention, the Fund must be:

•                     A 'person', and;

•                     A 'resident of a Contracting State'

The Fund is a statutory pension fund and satisfies the definition of both a 'person' and a 'resident of a Contracting State' for the purposes of applying the DT Convention. The Fund is therefore subject to the application of the DT Convention.

DT Convention - application to interest income

Article X of the DT Convention is the relevant provision in relation to interest income.

For Article X of the DT Convention to apply to the Fund, in respect of an exemption from withholding tax on interest income, it must satisfy the following:

•                     There is interest that arises in Australia

•                     The Fund is the beneficial owner of the interest and derives the interest

•                     The Fund is a resident of a foreign country, and

•                     The Fund is a pension scheme and its investment income is exempt from tax

Interest that arises in Australia

The Fund holds interest in Australian bonds from which it derives interest income.

All interest income arising from the Australian investments is paid by Australian residents for the purposes of Australian tax, and all such income is not connected to a permanent establishment or a fixed base situated outside Australia. Accordingly, pursuant to Article X of the DT Convention, interest income arises in Australia.

Therefore, interest arises in Australia from the Australian investments held by the Fund in accordance with Article X of the DT Convention.

The beneficial owner of the interest and derives the interest

The Fund is the beneficial owner of the interest income which it derives from its Australian debt investments. As such, it will be the beneficial owner of the interest.

Resident of Foreign Country

The Fund is a resident of the foreign country as it satisfies the definition of a 'resident of a Contracting State' and was established in the foreign country.

Pension scheme and investment income is exempt from tax

The Fund is a pension scheme, pursuant to the DT Convention, and is exempt from tax in the foreign country.

Other provisions of Article X of the DT Convention

The Fund does not meet any of the restrictions on the availability of the exemptions regarding its debt investments held in its own name and legal holding listed under Article X.

Consequently, the restrictions prescribed in the DT Convention relevant to the availability of the exemptions from income and withholding tax on interest income discussed above will not be applicable in respect of the interest income derived by the Fund.

Conclusion

The Fund is a pension scheme whose investment income is exempt from tax in Country A. In addition, it derives interest income from Australian debt investments held in its own name and legal holding.

As none of the restrictions prescribed in the DT Convention regarding the availability of the exemptions from tax on interest income apply, Article X of the DT Convention will operate to exempt the Fund from withholding tax on interest paid to the Fund from the debt investments held in its own name and legal holding.

Question 2

Summary

Yes, Article X of the DT Convention applies to exempt the Fund from withholding tax on interest paid by Australian resident company investments held through the Umbrella Fund and its sub-funds.

Detailed Reasoning

As established in Question 1, the Fund meets the requirements of Article X of the DT Convention and is therefore subject to its application.

DT Convention - application to interest income

Article X of the DT Convention is the relevant provision in relation to interest income.

For Article X of the DT Convention to apply to the Fund, in respect of an exemption from withholding tax on interest income, it must satisfy the following:

•                     There is interest that arises in Australia

•                     The Fund is the beneficial owner of the interest and derives the interest

•                     The Fund is a resident of a foreign country, and

•                     The Fund is a pension scheme and its investment income is exempt from tax

Interest that arises in Australia

Interest income arises from the Australian investments held by the Fund through the Umbrella Fund and its sub-funds.

All interest income arising from the Australian investments is paid by Australian residents for the purposes of Australian tax, and all such income is not connected to a permeant establishment or fixed base outside of Australia. Accordingly, pursuant to Article X of the DT Convention, interest income arises in Australia.

Therefore, interest arises in Australia from the Australian investments held by the Fund in accordance with Article X of the DT Convention.

The beneficial owner of the interest and derives the interest

For the purposes of the DT Convention, the Fund is the beneficial owner of the interest income which it derives via the Umbrella Fund and its sub-funds, which are not considered entities for the purposes of the law in Country A and are rather contractual relationships which are fiscally transparent. The income of the Umbrella Fund and its sub-plans is considered to be the income of the Fund as the sole investor in the Umbrella Fund and its sub-funds. The Fund is therefore the beneficial owner of the interest.

Resident of a Foreign Country

As determined above, the Fund is a resident of Country A, satisfies the definition of a 'resident of a Contracting State', and was established in Country A.

Pension Scheme and investment income is exempt from foreign tax

As determined above, the Fund is a pension scheme pursuant to the DT Convention and is exempt from tax in Country A.

Other Provisions of Article X of the DT Convention

The Fund does not meet any of the restrictions on the availability of the exemptions regarding its investments held through the Umbrella Fund and its sub-funds. Consequently, the restrictions prescribed in the DT Convention relevant to the availability of the exemptions from income and withholding tax on interest income will not be appliable in respect of the interest income derived by the Fund.

Conclusion

The Fund is a foreign pension scheme whose investment income is exempt from tax in Country A. Additionally, the Fund derives interest income from its Australian investments.

As none of the restrictions prescribed in the DT Convention regarding the availability of the exemption from tax on interest income apply, Article X of the DT Convention will operate to exempt the Fund from withholding tax on interest paid to the Fund by its Australian investments held by the Umbrella Fund and its sub-funds.

Question 3

Summary

Yes, Article Y of the DT Convention applies to exempt the Fund from withholding tax on dividends paid by Australian resident companies and REIT/MITs from the investments held through the Umbrella Fund and its sub-funds.

Detailed Reasoning

Generally, non-residents who derive Australian dividend or interest income are liable to pay withholding tax on that income (section 128B of the ITAA 1936 and subsections 128B(1)-(5) of the ITAA 1936).

However, in determining liability to Australian tax on Australian source income derived by a non-resident, it is necessary to consider not only the income tax laws but also any applicable Convention or Double Taxation Agreement contained in the International Tax Agreements Act 1953 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the ITAA 1997 so that those acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

As established in the relevant articles of the DT Convention, the DT Convention applies to all taxes imposed on income and in particular applies to Australian income tax.

Section 128B of the ITAA 1936imposes liability to withholding tax on dividend, interest and royalty income derived by non-residents. As such, withholding tax payable in respect to unfranked dividends and interest paid to non-residents is considered to be an Australian income tax and are covered by the DT Convention.

DT Convention - application to the Fund

As established in Question 1, the Fund is considered to be a 'person' and a 'resident of a Contracting State', and as such the Fund is subject to the application of the DT Convention.

DT Convention - application to dividend income

Dividend Income

Article Y of the DT Convention is the relevant provision in relation to dividend income. In order for Article Y of the DT Convention to apply to the Fund to provide an exemption from withholding tax on dividends, the Fund must satisfy the following:

•                     There are dividends that are being paid by companies, that are residents of Australia, to the Fund;

•                     The Fund is the beneficial owner of the dividends

•                     The Fund is a pension scheme and its investment income is exempt from tax in Country A.

•                     The Fund holds no more than 10 per cent of the voting power in the company paying the dividends.

•                     The Fund does not carry on a business through a permanent establishment in Australia or perform independent personal services from a fixed base in Australia.

•                     The Australian resident company that pays dividends is not a dual resident of both Australia and Country A.

1. There are dividends that are paid by companies that are residents of Australia

The Fund holds investments, through the Umbrella Fund and its sub-funds, in Australian resident companies listed on the Australian Stock Exchange (ASX), who pay dividends in relation to those investments.

Any dividends received from these Australian investments are paid by a company that is a resident of Australia.

The Fund also receives dividends from private and public Australian REIT and MIT investments, held through the Umbrella Fund and its sub-funds.

Generally, a REIT or MIT would not be treated as a company or body corporate for tax purposes and therefore would not meet the requirements of the DT Convention. However, where a REIT/MIT has received unfranked dividends from investments in underlying Australian tax resident companies and distribute these unfranked dividends to the Fund, these dividends will retain their character and will also meet the requirements of Article Y of the DT Convention subject to provision of evidence that an unfranked dividend has been paid by the REIT/MIT and an amount of withholding tax has been withheld.

Therefore, unfranked dividends paid to the Fund by REIT/MIT investments are dividends paid by companies that are residents of Australia. As previously established, if a dividend is franked then no withholding tax is paid and thus cannot be reclaimed. It should be noted that if other amounts (such as MIT fund payments, capital gains, rental income, other trust distributions; but excluding interest income) are paid by the REIT/MIT to the Fund, then any withholding tax withheld cannot be reclaimed for these amounts as these amounts are not considered to be 'dividends paid by a company' and do not fall within the scope of Article Y of the DT Convention.

2. The beneficial owner of the dividends

As established above, the income of the Umbrella Fund and its sub-funds are considered to be the income of the Fund as the sole investor in the Umbrella Fund and its sub-funds.

The Fund is therefore the beneficial owner of the dividend income which it derives from its investments through the Umbrella Fund and its sub-funds.

3. The Fund is a pension scheme and its investment income is exempt from tax in Country A

As established above, the Fund is a pension scheme and is exempt from tax in Country A.

Therefore, this condition is satisfied.

4. The Fund holds no more than 10 per cent of the voting power in the company paying the dividends

The Fund holds less than 10% of the voting power in all companies and all REIT/MIT entities paying the dividends.

Therefore, this condition is satisfied.

5. The Fund does not carry on a business through a permanent establishment in Australia or perform independent personal services from a fixed base in Australia.

Article Y of the DT Convention is limited in its application in circumstances where the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base.

The Fund does not carry on a business through a permanent establishment situated in Australia and does not perform independent personal services from a fixed based in Australia.

As such, Article Y will not be limited in these circumstances and this condition is satisfied.

6. The Australian resident company that pays dividends is not a dual resident of both Australia and Country A.

It is assumed the Australian companies and the REIT and MIT entities the Fund has invested in are not dual residents of both Australia and Company A pursuant to Article Y of the DT Convention.

Therefore, this condition is satisfied.

Conclusion

The Fund is a foreign pension scheme whose investment income is exempt from tax in Country A. The Fund is the beneficial owner of dividends paid by companies that are Australian residents, and dividends paid by REIT and MIT entities that are Australian residents, from investments held through the Umbrella Fund and its sub-funds. The Fund holds no more than 10 per cent of the voting power in the Australian companies and REIT and MIT entities paying the dividends.

Article Y of the DT Convention will therefore operate to exempt the Fund from withholding tax on unfranked dividends paid by the Australian companies and REIT/MIT entities such that the dividends shall not be taxed in Australia.

Franked dividends

Section 128B of ITAA 1936 imposes liability to withholding tax on income derived by a non-resident that consists of dividend income (subsection 128B(1) of the ITAA 1936) as well as other income prescribed in that section.) Paragraph 128B(3)(ga) of the ITAA 1936 prescribes that section 128B of the ITAA 1936 will not apply to income that consists of the franked part of a dividend.

Therefore, if dividends paid by the Australian entities paying dividends to the Fund are franked, then there is no withholding tax claimable as a refund.

Question 4

Summary

Yes, Article Y of the DT Convention applies to exempt the Fund from withholding tax on dividends paid by REIT/MITs held in the Fund's own name and legal holding.

Detailed Reasoning

DT Convention - application to the Fund

As previously established, the Fund is deemed to be a person and a pension scheme established in Country A, and therefore is a 'resident of a Contracting State'.

The Fund is therefore subject to the application of the DT Convention.

DT Convention - Application to dividend income

As determined in question 3, the DT Convention will apply to the dividend income received by the Fund from Australian REIT/MIT investments held in the Fund's own name and legal holding.

Conclusion

The Fund is a foreign pension scheme whose investment income is exempt from tax in Country A. The Fund is the beneficial owner of dividends paid by REIT and MIT entities that are Australian residents, from investments held in the Funds own name and legal holding. The Fund holds no more than 10 per cent of the voting power in the Australian REIT and MIT entities paying the dividends.

Article Y of the DT Convention will therefore operate to exempt the Fund from withholding tax on unfranked dividends paid by REIT and MIT entities such that the dividends shall not be taxed in Australia.

Franked dividends

Section 128B of ITAA 1936 imposes liability to withholding tax on income derived by a non-resident that consists of dividend income (subsection 128B(1) of the ITAA 1936) as well as other income prescribed in that section.) Paragraph 128B(3)(ga) of the ITAA 1936 prescribes that section 128B of the ITAA 1936 will not apply to income that consists of the franked part of a dividend.

Therefore, if dividends paid by the Australian entities paying dividends to the Fund are franked, then there is no withholding tax claimable as a refund.

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