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Ruling
Subject: Sovereign immunity
Question
Is the foreign government entity exempt from Australian interest withholding tax on income derived in Australia on behalf of its employees' pension fund?
Answer
The foreign government entity is exempt from Australian interest withholding tax on income derived in Australia on behalf of its employees' pension fund
This ruling applies for the following periods:
1 July 2010 to 30 June 2015
The scheme commences on:
1 July 2010
Relevant facts and circumstances
The entity is the monetary authority. Its purpose is to maintain the stability of its monetary system and the integrity of the banking system in order to facilitate the balanced growth and development of member states. It has full central bank functions such as issuing the common currency, managing a common pool of foreign exchange reserves for member countries, and maintaining monetary conditions conducive to growth, economic development, and financial system stability. The pension fund for its employees is under its control and its investment manager is accountable for the assets.
Relevant legislative provisions
Taxation Administration Act 1953 subsection 15-15(2).
Reasons for decision
In accordance with the common law doctrine of sovereign immunity, the Commissioner considers that income from passive investment in Australia will be exempt from withholding tax where the following factors are present:
· the person making the investment (and therefore deriving the income) is a foreign government or an agency of a foreign government
· the moneys being invested are and will remain government moneys, and
· the income is being derived from a non-commercial activity.
Although, the entity is not a government in its own right, sovereign immunity extends to income derived by an 'agency of a foreign government'. An agency of a foreign government will include any body exercising governmental functions provided the body is owned and controlled by government.
The entity is operating as a central bank on behalf of, and in the joint interests of, the Governments of the several countries. The pension fund for its employees is administered by an investment manager who is accountable to the executive of the entity.
The Commissioner considers the entity is jointly owned and controlled by the participating governments because each of the participating governments:
· agreed to create the entity
· contributed their financial reserves into the entity for it to use in carrying out the central banking functions on behalf of the participating governments, and
· agreed to legislation setting out the functions the entity would be permitted to perform in carrying out these central banking activities.
The funds invested by the entity in carrying out the central banking function on behalf of the participating Governments, and the income derived from such investment activity, is owned and remains owned by the each of the participating governments in proportion to their contribution of reserves to the entity. This includes the funds invested from the pension fund.
Accordingly, the entity is considered to be acting as an agent for each of participating Governments.
Although the net profit from entity's pension fund investment activities is not distributed to each of the participating Governments, the moneys being invested are and will remain government moneys of the respective governments and accountable in the annual report of the pension fund.
Lastly, the central banking activities undertaken by the entity are non-commercial in nature.
Accordingly, the Commissioner considers the income derived by the entity in acting as a central bank for each of the participating Governments is exempt from withholding tax under the common law doctrine of sovereign immunity.