Edited version of your written advice

Authorisation Number: 1012914487897

Date of advice: 20 November 2015

Ruling

Subject: Sovereign Immunity

Question 1

Is the agent of the entity immune from income tax or withholding tax on interest income, dividend income, rental income, trust distributions, capital gain distributions, managed investment trust distributions and any other income derived from its direct investment in the assets under the common law doctrine of sovereign immunity?

Answer

Yes

This ruling applies for the following periods

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

Year ending 30 June 2019

Year ending 30 June 2020

Year ending 30 June 2021

Year ending 30 June 2022

Year ending 30 June 2023

Year ending 30 June 2024

Year ending 30 June 2025

The scheme commences on

During the year ending 30 June 2016.

Relevant facts and circumstances

1. The entity was established by the enactment of legislation by the Parliament of a foreign nation.

2. The entity forms part of the Government of a foreign nation.

3. The entity established a wholly owned corporation in its jurisdiction to act as agent to manage assets entrusted by the Government and national bank.

4. The agent conducts the following business:

i. Management of assets which are entrusted by the Government and the national bank

ii. Survey and research related to item (i) and exchange and cooperation with related domestic or overseas institutions, and

iii. Any other incidental business relating to item (i) and item (ii).

5. The agent entered into an Investment Management Agreement (IMA) with the entity. Under the IMA, the entity entrusts the foreign exchange reserves of the Government (the Assets) to the agent. The agent manages the Assets for the entity and is the legal owner of these assets while the entity is the beneficial owner of the Assets.

6. The profits from the management of the Assets by the agent shall belong to the entity. The profits include all income and gains derived from the entrusted assets including interest, dividends, fund payments, capital gains and foreign exchange gains.

7. The Assets managed by the agent on behalf of the entity are to be accounted for separately from assets that the agent holds in its own right and the assets entrusted by other ministries and agencies.

8. Under the IMA, the entity may demand payment of the profits from asset management by giving prior notice to the agent. If the entity does not make a demand for payment, the profits from asset management are reinvested by the agent on behalf of the entity.

9. There is no trust deed between the agent and the entity.

The Investment Manager

10. An Australian investment manager (the Investment Manager) will manage the proposed investment in the assets and it proposes to act on behalf of a number of clients (the Consortium), one of which is the agent.

The Investment Fund

11. The Investment Fund is a managed wholesale fund managed by the Investment Manager.

12. The Investment Fund is another client of the Consortium in respect of the proposed investment.

13. Investors into the Investment Fund invest through a combination of trusts and partnerships.

14. The Investment Fund then invests in an Aggregator Trust and an Aggregator company.

15. The Investment Fund Trusts will each have an Investors' Advisory Committee (IAC).

16. The Investment Fund Trusts will also have a combined IAC which is formed by the members of each IAC.

17. The combined IAC will be comprised of eight (8) members, including one representative appointed by the agent.

18. Meetings of the IAC can only be convened by the Trustees and only where the Trustees propose to undertake a matter that requires IAC approval.

19. IAC approval can only be obtained in relation to:

i. Related party transactions

ii. Investments that are not authorised investments

iii. Acquisitions outside of the investment limitations

iv. Approval of liquidity plans

v. The issue of units after final close

vi. Appointment of replacement named executives

vii. Appointment of a replacement Trustee

viii. Agreement to pay underwriting fees to an advisory firm for the purpose of raising capital, and

ix. Other matters that are prohibited under the trust deeds without the approval of the IAC.

Aggregator Vehicles

20. The Aggregator Trust and Aggregator company (together the Aggregator vehicles) accept investments from the Investment Fund and from co-investors.

21. The Aggregator vehicles will invest in the assets.

22. This investment is expected to equate to a X% interest in the assets.

The Investment

23. The Consortium proposes to invest in a long-term lease of the assets.

24. The Consortium proposes to adopt a holding structure for the investment which involves the establishment of a stapled group with an Asset Trust/Operating Trust staple.

25. Under the holding structure each investor will hold a proportionate interest in all relevant entities.

26. The arrangements between the investors will be governed by a Securityholders' Agreement.

27. The agent proposes to invest in the underlying assets via three avenues:

i. A direct interest in the entities (the direct interest)

ii. Indirectly as an investor in the Investment Fund (the Investment Fund interest), and

iii. Indirectly as a co-investor through Investment Fund aggregator vehicles (the Co-Investment interest).

The Direct Interest

28. It is proposed that the agent will have a direct Y% interest in the underlying assets.

29. Once this direct interest is acquired, the Agent and the Investment Manager will enter into an Investment Management Agreement (IMA) which appoints the Investment Manager as manager of this interest on behalf of the agent.

30. The direct investment by the agent will also be governed by the Securityholders' Agreement for the Consortium.

31. As part of the IMA and the Securityholders' Agreement, the agent is provided with the right to at least one voting seat on the Board of Directors of the trustee companies for the underlying asset entities. However, the agent will elect under the Securityholders' Agreement not to take up its entitlement and will not exercise any board appointment rights in respect of Directors of the trustees of the trustee companies for the entities.

32. As part of the Securityholders' Agreement, the agent is provided with other Board and securityholder voting rights at different levels of A%, B% and C% for different specified matters.

33. The Agent will only exercise securityholder voting rights in respect of the matters listed in the Securityholders' Agreement as a "Securityholder Super Reserved Matters" requiring approval of a "Super Majority of Securityholders", which is defined as C% of the total equity interests present at the meeting and voting on the resolution.

34. The matters that defined as Securityholder Super Reserved Matters are set out in the Securityholders' Agreement and include any changes to a constituent document, any changes to the rights attached to shares and any changes to the fundamental nature of the business carried out by the underlying asset entities.

35. Except with respect to the Securityholder Super Reserved Matters, the agent will have no involvement in the management and conduct of the underlying business.

36. The Consortium members do not currently propose to make shareholder loans to the underlying entities or entities associated with them. If it becomes necessary in the future for shareholder loans to be provided these would only be provided on the following conditions:

i. Any loan will only provide ordinary creditor rights and will not provide the lender with any ability to exert influence over the Board Decisions or the day-to-day operations of the Head Entities;

ii. Any loan will not be convertible to equity;

iii. Any loan will not have a profit participating element in the interest rate;

iv. Any loan would be issued on a pro-rata basis and be issued on the same terms and conditions as loans provided by the other Securityholders.

37. The nature of the income received by the agent from the investment will be trust distributions which will primarily comprise rental income and trading income.

The Investment Fund Interest

38. The agent has invested into the Investment Fund which is managed by the Investment Manager.

39. The Investment Fund intends to raise further capital to invest in a diversified portfolio of global assets.

40. The agent is intended to hold less than 10% of the Investment Fund when the fund is fully subscribed.

41. The Investment Fund will subsequently invest into the Aggregator Vehicles (among its many other investments).

42. The Aggregator Vehicles will invest in the underlying asset entities.

43. The agent is intended to have an approximately Z% indirect interest in the underlying asset entities via the Investment Fund Interest.

44. The agent will not have control or influence over the day to day management and operations of the Investment Fund, including its associated trusts, aggregator vehicles and underlying investments.

45. The agent will not be able to dictate how the Investment Fund exercises its rights in relation to its investment in the underlying asset entities.

46. Under the Securityholders' Agreement, the Investment Manager has a right to appoint additional directors in the event that its Affiliates and Manager Affiliates do not take up their entitlements to appoint directors. The Investment Manager will not exercise its right to appoint such additional directors in relation to the agent's interest in the underlying asset entities.

The Co-Investment Interest

47. The agent has committed to invest further funds via the Aggregator vehicles, via a Managed Investment Trust structure.

48. The Aggregator vehicles will invest in the underlying asset entities.

49. The investment of the Aggregator Vehicles is expected to equate to a X% interest in the underlying asset entities.

50. This investment avenue is proposed to provide the agent with an indirect tracing interest between D% and E% investment in the underlying asset entities.

51. The agent will not have control or influence over the day to day management and operations of the Aggregator vehicles and underlying investments.

52. The agent will not be able to dictate how the Aggregator vehicles exercise their rights in relation to its investment in the underlying asset entities.

53. The agent will only have the ordinary legal rights of a minority unit holder / shareholder.

54. The Aggregator Vehicles will not have an IAC.

Combined Interest

55. The total direct and indirect interests held by the agent in the underlying asset entities will be less than 20%

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 128 B

Income Tax Assessment Act 1997 Section 4-1.

Reasons for decision

Non-resident taxpayers will generally be liable to pay income tax under section 4-1 of the Income Tax Assessment Act 1997 (ITAA1997) or withholding tax under section 128B of the Income Tax Assessment Act 1936 (ITAA1936) on Australian-sourced income, unless an exemption or exclusion applies.

While the taxation legislation does not provide any relevant exemption or exclusion for an entity, it is accepted in certain circumstances that liability to income tax and withholding tax will not be imposed on foreign governments or foreign government agencies under the common law doctrine of sovereign immunity.

Sovereign Immunity

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 engages 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.

In determining whether the doctrine of sovereign immunity applies to 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) is a foreign government or an agency of a foreign government;

2. that the moneys invested are and will remain government moneys; and

3. that the income or gain is being derived from a non-commercial activity.

If these three conditions are satisfied, then the income or gains will not be subject to Australian income tax and/or withholding tax.

Condition 1: Foreign state or an agency of a foreign state

The entity forms part of a foreign government and is responsible for managing economic policy, finances, fiscal strategies and tax system.

The agent is a wholly owned agent of the entity and was established to manage assets entrusted by the Government and national bank. It was established by legislative enactment and acts as trustee of the Assets beneficially for the entity under an investment management agreement (IMA).

Accordingly, it is accepted that the entity is a foreign government and the agent is an agency of a foreign government.

Therefore this condition is satisfied.

Condition 2: Monies are and will remain government monies

In line with the principle that sovereign immunity applies to foreign states performing only governmental functions, an entity claiming sovereign immunity must establish that the monies being invested are and will remain government monies.

The agent manages the Assets for the entity and is the legal owner of the Assets while the entity is beneficial owner.

Profits from management of the Assets by the agent shall belong to the entity, including all income and gains derived from the entrusted assets including interest, dividends, fund payments, capital gains and foreign exchange gains.

The Assets managed by the agent on behalf of the entity must be accounted for separately from any assets held in its own right or which have been entrusted to it by other government ministries and agencies.

Under the IMA, the entity may demand payment of the profits from management of the Assets by giving prior notice. If no such demand is made, these profits are to be reinvested on behalf of the entity.

Accordingly, the monies that are invested by the agent for the benefit of the entity are and will remain government monies.

Therefore this condition is satisfied.

Condition 3: Non- commercial transaction

Whether an operation or activity is a commercial transaction will depend on the facts of each case.

As a guide, a commercial transaction is generally considered to be an activity concerned with the trading of goods and services, such as buying, selling, bartering, transportation, and includes the carrying on of a business.

In relation to the ownership of shares in a company or other similar equity interests, there would be instances where the extent of the holding gives rise to questions as to whether the interests constitute a passive investment or a commercial investment. A determination of commerciality will depend on the particular circumstances.

Importantly, consideration will be given to factors relating to the influence and control, particularly in relation to day to day management and key business, strategy and financial decisions that are exercised by the investor in relation to the acquired company or similar equity investment.

Is the agent's direct investment in the underlying entities a commercial transaction?

It is proposed that the agent will have a X% direct interest in the underlying asset entities.

The agent has discretion to make the decision to enter this investment and once made it will enter into the IMA with the Investment Manager to manage the interest.

As part of the IMA and the Securityholders' Agreement, the agent is provided with the right to at least one voting seat on the Board of Directors of the trustee companies for the underlying asset entities. However the agent will not exercise any board appointment rights in respect of Directors of the trustees of the trustee companies for the underlying asset entities.

In addition, under the Securityholders' Agreement, the Investment Manager has a right to appoint additional directors in the event that the agent does not take up its entitlement to appoint directors.  The Investment Manager will not exercise its right to appoint such additional directors in relation to the agent's interest in the underlying asset entities.

As part of the Securityholders' Agreement, the agent is provided with other Board and securityholder voting rights at different levels of A%, B% and C% for different specified matters.

The subsidiary will only exercise securityholder voting rights in respect of the matters listed in the Securityholders' Agreement requiring C% of the votes entitled to be cast for the proposed decision or resolution. The matters requiring C% securityholder support are securityholder protection issues, including any changes to a constituent document, any changes to the rights attached to shares and any changes to the fundamental nature of the business carried out by the underlying asset entities. These matters do not provide the subsidiary with any day to day operational control. These matters do not impact on the management and conduct of the underlying asset entities.

The agent will not, either directly or indirectly, have any involvement in the management and conduct of the underlying asset business.

From the above, it is evident that the agent will not exercise any control or influence on the day to day management of the underlying asset entities. It is also evident that the agent will not exercise control or influence over strategic and financial decisions relating to the underlying asset entities.

Accordingly, the direct X% investment by the entity through the agent into the underlying asset entities will constitute a passive and non-commercial activity.

This direct investment is in addition to the two other indirect investments into underlying asset entities by the subsidiary via the Investment Fund Interest and the Co-investment Interest. These indirect interests will raise the agent's total investment to between E% and F%. However it is accepted that this does not change the passive and non-commercial nature of the agent's direct investment in the underlying asset entities.

Therefore this condition is satisfied.

Conclusion

As the three conditions have been satisfied, the agent will be immune from income tax or withholding tax with respect to income derived from the direct X% investment in the underlying asset entities under the common law doctrine of sovereign immunity.