Edited version of private advice

Authorisation Number: 1051608853875

Date of advice: 02 February 2021

Ruling

Subject: Exemption from withholding tax for superannuation funds for foreign residents

Question

Are the plans described in the relevant facts and circumstances ('Funds') excluded from liability to withholding tax on interest, dividend and non-share dividend income derived in respect of their Australian Investments, listed in the relevant facts and circumstances of this Ruling, in accordance with paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 20xx

Year ending 30 June 20xx

Year ending 30 June 20xx

Year ending 30 June 20xx

Year ending 30 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

Fund A

Fund A is an indefinitely continuing fund that was established by foreign legislation to provide retirement allowances and other benefits for employees of participating employers.

Fund A is responsible for the administration and overall management of numerous plans. Each plan, including benefit and contribution provisions, was established and can be amended by foreign legislation.

The plans can pool their funds pursuant to the foreign legislation.

Fund A is exempt from taxation in the Foreign Jurisdiction under foreign legislation and is a tax resident of the Foreign Jurisdiction.

For the purposes of the ITAA 1936 and the Income Tax Assessment Act 1997 (ITAA 1997):

•         An amount paid to, or set aside for, Fund A has not been and cannot be deducted.

•         A tax offset has not been allowed, nor would be allowable, for any amount paid to Fund A or set aside for Fund A.

•         Fund A's income from its Australian Investments is not non-assessable non-exempt income because of Subdivision 880-C of the ITAA 1997 or Division 880 of the Income Tax (Transitional Provisions) Act 1997.

Fund A does not make its investments through a trust estate, nor receive payments from a trust estate.

The plans participating in the Common Fund

Investments of the plans listed below are acquired and pooled together through a 'Common Fund', which is administered and governed by Fund A.

1. Plan A

Plan A is a multiple-employer defined benefit plan that provides retirement allowances for employees of the participating employers.

Creation and Governance

Plan A is a fiduciary fund of Fund A and was created under the same provision of Foreign Legislation.

Fund A and Plan A share a Board of Trustees created under the Foreign Legislation. The membership, powers and duties of the Board of Trustees are set out in the Foreign Legislation.

All meetings of the Board of Trustees are held at the head office of Fund A in the Foreign Jurisdiction.

Membership

In order to be eligible to receive retirement benefits under Plan A, a person must be a member of Plan A. Any person who is employed by one of the employers participating in Plan A becomes a member of Plan A as a condition of their employment, unless an exception applies.

There are three tiers of membership. A member's tier of membership will generally depend on the date that their membership of Plan A began.

As of 30 June 20xx, there were hundreds of employers and over one hundred thousand members participating in Plan A.

Contributions and refunds

Contributions to Plan A are made by both members and employers according to a complex set of rules. The amount of the contributions generally depends on the relevant membership tier and the employee's salary.

A member may be eligible for a lump-sum refund of employee contributions if that member terminates their employment. If a member takes a refund the following consequences arise:

•         The member waives all other benefit rights in the plan such that no other benefits will be payable to the Member or to any beneficiaries.

•         If a Member has x or more years of service and is vested and eligible for retirement benefits, taking a refund cancels the right to receive those benefits in the future.

•         If covered under an insurance plan, such coverage is waived when receiving a refund (contributions made for insurance premiums are not refundable)

•         Plan membership is terminated. If the Member is later rehired, they will become a Member under the terms of the plan in effect at the rehire date.

Service and vesting

Members accumulate Service for each month of active Plan A membership for which employee contributions are deducted. Members can receive additional Service in some situations, including for prior employment.

Once a Member earns xx years of Service, they have a vested right to a retirement benefits at age xx, even if the Member terminates employment before reaching age xx.

Benefits

When a Member terminates employment, the Member may be eligible for one of the following types of benefits from the plan:

•         Retirement Benefit - Once a member has reached Retirement Age, they can retire and begin receiving monthly benefits for the rest of their life. The amount of the benefit is dependent on a number of factors including the member's salary, Service, tier of membership and whether the member has opted to provide additional benefits to the member's beneficiaries upon that member's death. Retirement Age is the earlier of:

o   Attaining age xx with xx years of Service, or

o   Attaining xx years of Service.

•         Early Retirement Benefit - Members can commence early retirement benefits at any age before their Retirement Age once they have attained xx years of Service. Early retirement benefits are reduced by a certain percentage depending on the age and Service of the member.

•         Refund of the member's Contributions and Interest - Members can receive a refund of employee contributions and interest when they cease being employed by a participating employer.

•         Disability Benefit - Benefits may be payable to a member if that member is unable to perform their job due to a permanent medical condition.

•         Death Benefit - Benefits may be paid to a member's beneficiaries upon that member's death. The amount of the death benefits depends on the circumstances of the member.

2. Plan B

Plan B is a multiple-employer defined benefit plan that provides retirement allowances for employees meeting certain criteria.

Creation and governance

Plan B was created under Foreign Legislation.

Membership of the board of Plan B is determined under Foreign Legislation.

The board of Plan B is granted certain powers and duties under Foreign Legislation.

Membership

Any person who is employed by one of the employers participating in Plan B will generally become a member of Plan B as a condition of their employment. Members are employees meeting certain criteria.

As of 30 June 20xx, there were tens of thousands of members and over a hundred employers participating in Plan B.

Contributions and refunds

Members must make fixed monthly contributions to Plan B that do not depend on the member's wages. The required contributions depends on when the member joined Plan B. Members cannot make smaller or larger contributions.

The Participating Employers also make contributions to Plan B that are actuarially determined and approved by the board of trustees. These contributions are not refundable to any member.

A member may be eligible for a lump-sum refund of employee contributions and interest if that member terminates their employment. If a member takes a refund the following consequences arise:

•         The member waives all other benefit rights in the plan such that no other benefits will be payable to the Member or to any beneficiaries.

•         If the Member is vested and eligible for a monthly benefit, taking a refund cancels the right to receive a monthly benefit in the future.

•         Plan membership is terminated. If the Member is later rehired, they will become a member under the terms of the plan in effect at the rehire date.

Service and vesting

Members earn Service from their employment and in some other circumstances.

Once a Member earns x years of Service, they have a vested right to retirement benefits at age xx, even if the Member terminates employment before reaching age xx.

Benefits

When a Member terminates employment, the Member may be eligible for one of the following types of benefits from the plan:

•         Retirement Benefit - Once a member has reached Retirement Age, they can begin receiving monthly benefits for the rest of their life. The amount of the benefit is dependent on a number of factors including the member's Service and whether the member has opted to provide additional benefits to the member's beneficiaries upon that member's death. Retirement Age is defined as the attainment of age xx and xx years of Service.

•         Early Retirement Benefit - Members can commence early retirement benefits from age xx, provided they have at least xx years of Service. Early retirement benefits are equal to normal retirement benefits but reduced by a certain percentage depending on the age of the member.

•         Refund of the member's Contributions and Interest - Members can receive a refund of employee contributions and interest in some circumstances.

•         Disability Benefit - Benefits may be payable to a member if that member is unable to perform their job due to a permanent medical condition.

•         Death Benefit - Benefits may be paid to a member's beneficiaries upon that member's death. The amount of the death benefits depends on the circumstances of the member.

3. Plan C

Plan C is a single-employer defined benefit plan that provides retirement allowances for employees meeting a certain condition.

Creation and governance

Plan C was created under Foreign Legislation.

The management of Plan C is governed by Foreign Legislation.

Membership

In order to be eligible to receive retirement benefits under Plan C, a person must meet certain criteria. Membership in Plan C is optional for those meeting the criteria.

As of 30 June 20xx, there were hundreds of members and one employer participating in Plan C.

Contributions and refunds

Employee contributions to Plan C equal x% of a member's monthly salary. The employer covers part of these contributions on behalf of the employees.

The employer also makes additional contributions in order to provide for members' benefits. The amount of these employer contributions is determined actuarially and then approved by the Board of Trustees.

A member may be eligible for a lump-sum refund of employee contributions and interest if that member ceases their employment. If a member takes a refund the following consequences arise:

•         The member waives all other benefit rights in the plan such that no other benefits will be payable to the Member or to any beneficiaries.

•         If a Member has x or more years of Service and is vested and eligible for a monthly benefit, taking a refund cancels the right to receive a monthly benefit in the future.

•         Plan membership is terminated. If the Member is later rehired, they will become a member under the terms of the plan in effect at the rehire date.

•         If the Member has insurance coverage associated with Plan C, such coverage is waived when receiving a refund.

Service and vesting

Members earn one year of Service for each year they are a contributing member of Plan C. Members can also gain additional Service in some situations.

Once a Member earns x years of Service, they have a vested right to retirement benefits.

Benefits

When a Member terminates employment, the Member may be eligible for one of the following types of benefits from the plan:

•         Retirement Benefit - Once a member has reached Retirement Age, they can begin receiving monthly benefits for the rest of their life. The amount of the benefit depends on several factors including the member's Service and whether the member has opted to provide some of the benefits to the member's beneficiaries upon that member's death. Retirement Age is the attainment of age xx and x years of Service.

•         Early Retirement Benefit - Members can generally commence early retirement benefits from age xx, provided the Member has at least x years of Service. Early retirement benefits are equal to normal retirement benefits but reduced by a certain percentage depending on the age of the member.

•         Refund of the member's Contributions and Interest - In some circumstances members can receive a refund of employee contributions and interest.

•         Disability Benefit

•         Death Benefit - Benefits may be paid to a member's beneficiaries upon that member's death. The amount of the death benefits depends on the circumstances of the member.

4. Plan D

Plan D is a multiple-employer defined benefit plan that provides retirement allowances to certain employees.

Creation and governance

Plan D was created under Foreign Legislation.

Specific powers and duties of the board of trustees are set out in Foreign Legislation.

Membership

In order to be eligible to receive retirement benefits under Plan D, a person must be a member of Plan D. Any person commencing a role with certain employers will generally be required to become a member of Plan D.

As of 30 June 20xx, there were hundreds of members and dozens of employers participating in Plan D.

Contributions and refunds

Employee contributions to Plan D are made through payroll deductions of x% of the member's earnable compensation. For some members, the employer pays some or all of the employee contributions.

The participating employers make additional contributions in order to fund the benefits payable under Plan D. The amount of these employer contributions is an actuarially determined percentage of a member's earnable compensation.

A member may be eligible for a lump-sum refund of employee contributions and interest if that member ceases to be employed by their employer. If a member takes a refund the following consequences arise:

•         The member waives all other benefit rights in the plan such that no other benefits will be payable to the Member or to any beneficiaries.

•         If a Member has x or more years of Service, taking a refund cancels the right to receive a monthly benefit in the future.

•         Plan membership is terminated. If the Member is later rehired, they will become a member under the terms of the plan in effect at the rehire date.

•         If the Member has insurance coverage associated with Plan D, such coverage is waived when receiving a refund.

Service and vesting

Members earn Service for each month of active Plan D membership for which employee contributions are deducted. Members can also gain additional Service in some situations.

Once a member earns x years of Service, they have a vested right to retirement benefits at age xx, even if the member terminates employment before reaching that age.

Benefits

When a member terminates employment, the Member may be eligible for one of the following types of benefits from the plan:

•         Retirement Benefit - Once a member is xx years old and has at least x years of Service, that member can begin receiving monthly benefits for the rest of their life. The amount of the benefit depends on several factors including the member's salary, Service and whether the member has opted to provide some of the benefits to the member's beneficiaries upon that member's death.

•         Early Retirement Benefit - Members can generally commence early retirement benefits from age xx with less than x years of Service, provided the member has at least x years of Service. The amount of the early retirement benefits depends on very similar factors as would be the case for regular retirement benefits.

•         Refund of the member's Contributions and Interest - In some circumstances members can receive a refund of employee contributions and interest.

•         Disability Retirement - Benefits may be payable to a member if that member is unable to perform their job due to a disability.

•         Death Benefit - Benefits may be payable to a member's beneficiaries upon that member's death. The amount of the death benefits depends on the circumstances of the member.

5. Plan E

Plan E is a single-employer defined benefit plan that provides retirement allowances and other benefits for members of a particular employer.

Creation and governance

Plan E was created under Foreign Legislation.

The management of Plan E is governed by Foreign Legislation.

Membership

In order to be eligible to receive retirement benefits under Plan E, a person must be a member of Plan E. If a person is an employee of the participating employer they will automatically be a member of Plan E.

As of 30 June 20xx, there were hundreds of retirees and beneficiaries currently receiving benefits from Plan E.

Contributions and refunds

Members are not required nor permitted to make contributions to the plan. The benefits paid through Plan E are funded entirely through employer contributions paid by the employer. These employer contributions are actuarially determined and approved by the Board.

The contributions are not refundable to the member or any other person.

Service and eligibility to benefits

Members earn Service for each year as an employee of the participating employer. Members can also gain additional Service in some situations.

Members earn a right to receive benefits upon meeting the eligibility requirements including minimum Service requirements.

Benefits

A member who has met the eligibility requirements and who is at least xx years old may apply for lifetime retirement benefits under Plan E. Retirement benefits are between $xx per month and $xx per month depending on the member's Service.

A member who has met the eligibility requirements but who is less than xx years old will not start receiving retirement benefits until they are xx years old.

No death benefits are payable under Plan E.

6. Plan F

Plan F is a single-employer defined benefit plan that provides retirement benefits to certain employees of the participating employer. Plan F is a predecessor system to Plan D.

Creation and governance

Plan F was created under Foreign Legislation.

The management of Plan F is governed by Foreign Legislation.

Membership

No new members are allowed into Plan F. As of 30 June 20xx, Plan F has a small number of retirees and beneficiaries currently receiving benefits and no active members.

Contributions and benefits

Plan F does not have any active members. Employer contributions are provided on an as-needed basis to fund current benefits rather than being actuarially determined. Contributions are non-refundable.

Retired members under Plan F receive a percentage of salary depending on age (beginning at age xx) and service. Death, disability, and spousal benefits are also available.

7. Plan G

Plan G is a multiple-employer defined benefit plan that provides retirement benefits to certain employees of the participating employers. Plan G is a predecessor system to Plan D.

Creation and governance

Plan G was created under Foreign Legislation.

The management of Plan G is governed by Foreign Legislation.

Membership

No new members are allowed into Plan G. As of 30 June 20xx, Plan G has a small number of members and beneficiaries currently receiving benefits and no active members.

Contributions and benefits

Employer contributions are provided on an as-needed basis to fund current benefits rather than being actuarially determined. Employee contributions are prohibited and employer contributions are non-refundable.

Eligible members receive an annual benefit of $xx, or 50% of their former salary, whichever is greater.

8. Plan H

Plan H is a multiple-employer defined benefit plan that provides life insurance to retired and inactive members of Plan A, Plan C and Plan D.

Membership

No employees of any participating employer hired after 1 July 20xx are eligible for life insurance under Plan H. As of 30 June 20xx, there were tens of thousands of retirees and beneficiaries of the plan and hundreds of participating employers.

Benefits

Contributions made to Plan H are non-refundable.

The amount of insurance for a retiree is calculated as a percentage of the amount of insurance under Plan I in effect at age xx, termination, or retirement depending on the circumstances. Life insurance proceeds are paid in a lump sum to the beneficiary upon death of the retiree.

9. Plan I

Plan I is a multiple-employer life insurance plan created under Foreign Legislation. Plan I accumulates the premiums received from Plan A, Plan C and Plan D and provides life insurance coverage to their active members.

Membership

No employees of participating employers hired after 1 July 20xx are eligible for life insurance under the plan. As of 30 June 20xx, there were tens of thousands of active plan members in Plan I.

Contributions and Benefits

Employee contributions in Plan I are set by the board of Plan I and are required to be less than x% of a member's earnable compensation. Contributions made to Plan I are non-refundable.

The amount of insurance coverage is equal to x times monthly earnable compensation frozen at age xx. The amount of the insurance coverage will generally decrease from age xx. Life insurance proceeds are paid in lump sum to the beneficiary upon death of the member.

The excess of premiums and investment income over benefit payments and expenses are held as a reserve for payment of death benefits under existing policies.

10. Plan J

Plan J was established within Plan A trust in accordance with the Foreign Legislation for maintaining life insurance coverage for members of Plan A. No contributions are made by members to Plan J. All assets of Plan J are limited to the payment of benefits and expenses for such insurance coverage and cannot be used to pay pension benefits of Plan A.

The plans that do not participate in the Common Fund

There are also several plans associated with Fund A that do not participate in the Common Fund.

This ruling does not apply to the investments of these plans.

Treatment of refunds under Foreign Jurisdiction tax law

Foreign Legislation requires that income tax is withheld from the taxable portion of any refund from a plan. Members may also be subject to additional tax if they are under a certain age.

Investments made by Fund A

Investment Structure

Contributions from members and employers go to each of the relevant plans rather than directly to the Common Fund. Each plan also pays out benefits from their own accounts and is legally separate from the others. Other than having separate deposit accounts, all investment of the relevant plans are made through the Common Fund.

The Common Fund is a unitised structure and units are allocated to each of the relevant plans based upon the cost of assets contributed. Additional units are allocated to the plans based on the market value of the Common Fund at the date of contributions. This investment structure was adopted by Fund A for ease of administration and investment.

The Common Fund is not a separate legal entity but rather akin to a bare trust arrangement. Each of the plans administered by Fund A has a beneficial interest, and absolute entitlement, to the underlying portfolio. There are no formal agreements between Fund A and the plans covering the rights of those plans to the income of the investments outside of the provisions in the Foreign Legislation. However, the Common Fund is accounted for on a full accrual basis meaning that the plans have access to income when it is earned.

There are daily cash transfers to and from the Common Fund. As the plans receive contributions they deposit cash for investment. As the plans need to pay benefits, they withdraw cash from the Common Fund.

Fund A contracts with Entity A for investment management services in relation to the Common Fund.

The Common Fund receives dividends and interest from its underlying investments (including Australian Investments - see below) directly. Fund A then allocates the net income of the Common Fund to the plans on a monthly basis. The net income is based upon the number of units outstanding during the month and the distribution payments are net of administration fees.

Australian Investments

The investment in equities, Australian or otherwise, must not exceed xx% of the total invested assets of the fund on a historical cost basis. Equity holdings in any one corporation may not exceed x% of the outstanding equity of the issuing corporation.

The Funds provided a list of Australian equity investments as at xx xx 20xx ('Australian Investments').

The equity investments of the Funds have the following characteristics ('Equity Characteristics'):

(a)  All investments are listed on the Australian Securities Exchange (ASX) and form part of the Common Fund described above.

(b)  The Funds hold less than 10% of the total equity interests on issue of each Australian company or trust.

(c)   The Funds have no involvement in the day to day management of the business of any of the Australian companies or trusts.

(d)  The Funds have no right to appoint a director to the Board of Directors of the Australian company or equivalent role in a trust.

(e)  The Funds have no right to representation on any investor representative or advisory committee (or similar) of the Australian company, or equivalent role in a trust.

(f)    The Funds have no ability to direct or influence the operation of the Australian company or trust outside of the ordinary rights conferred by the equity interest held.

(g)  The Funds only holds rights to vote in proportion to their equity interest in each Australian company or trust.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 6

Income Tax Assessment Act 1936 Division 6

Income Tax Assessment Act 1936 Section 128B

Income Tax Assessment Act 1936 subsection 128B(1)

Income Tax Assessment Act 1936 subsection 128B(2)

Income Tax Assessment Act 1936 subsection 128B(3)

Income Tax Assessment Act 1936 paragraph 128B(3)(jb)

Income Tax Assessment Act 1936 subsection 128B(3CA)

Income Tax Assessment Act 1936 subsection 128B(3CB)

Income Tax Assessment Act 1936 subsection 128B(3CC)

Income Tax Assessment Act 1936 subsection 128B(3CD)

Income Tax Assessment Act 1997 Section 118-520

Income Tax Assessment Act 1997 subsection 118-520(1)

Income Tax Assessment Act 1997 subsection 118-520(2)

Income Tax Assessment Act 1997 Subdivision 880-C

Income Tax Assessment Act 1997 Subdivision 960-GP

Income Tax Assessment Act 1997 Section 995-1

Income Tax (Transitional Provisions) Act 1997 Division 880

Reasons for decision

All references are to the Income Tax Assessment Act 1936 (ITAA 1936) unless otherwise noted.

Question 1

Are the Funds excluded from liability to withholding tax on interest, dividend and non-share dividend income derived in respect of their Australian Investments, listed in the relevant facts and circumstances of this Ruling, in accordance with paragraph 128B(3)(jb)?

Summary

The Funds are excluded from liability to withholding tax on interest, dividend and non-share dividend income derived in respect of their Australian Investments, listed in the relevant facts and circumstances of this Ruling, in accordance with paragraph 128B(3)(jb).

Detailed reasoning

Broadly, paragraph 128B(3)(jb) provides an exclusion from withholding tax for interest, dividends and non-share dividends derived by a superannuation fund for foreign residents (subject to the satisfaction of certain conditions).

For the exclusion to apply, the interest, dividend and/or non-share dividend income must be:

•         derived by a superannuation fund for foreign residents (as defined in section 118-520 of the ITAA 1997), and

•         exempt from income tax in the country in which the superannuation fund for foreign residents arise.

Further, from 1 July 2019, the extra requirements in subsection 128B(3CA) must also be met.

Superannuation fund for foreign residents

The term 'superannuation fund for foreign residents' is defined in section 118-520 of the Income Tax Assessment Act 1997 (ITAA 1997) as follows:

118-520 Meaning of superannuation fund for foreign residents

(1) A fund is a superannuation fund for foreign residents at a time if:

(a) at that time, it is:

(i) an indefinitely continuing fund; and

(ii) a provident, benefit, superannuation or retirement fund; and

(b) it was established in a foreign country; and

(c) it was established, and is maintained at that time, only to provide benefits for individuals who are not Australian residents; and

(d) at that time, its central management and control is carried on outside Australia by entities none of whom is an Australian resident.

(2) However, a fund is not a superannuation fund for foreign residents if:

(a) an amount paid to the fund or set aside for the fund has been or can be deducted under this Act; or

(b) a *tax offset has been allowed or is allowable for such an amount.

1. An indefinitely continuing fund

The Funds were established as indefinitely continuing funds through Foreign Legislation.

Fund A, who legally holds the Australian Investments, was established for the purpose of providing retirement allowances and other benefits for employees of the participating employers.

The Funds would only be wound up through a law change to the Foreign Legislation. There is no indication that this will occur in the immediate future.

Therefore, the Funds satisfy this requirement.

2. A provident, benefit, superannuation or retirement fund

The phrase 'provident, benefit, superannuation or retirement fund' under subparagraph 118-520(1)(a)(ii) of the ITAA 1997 is not defined in either the ITAA 1936 or the ITAA 1997.

ATO Interpretative Decision ATO ID 2009/67 Income Tax: Superannuation fund for foreign residents (ATO ID 2009/67) provides guidance on the meaning of the phrase 'provident, benefit, superannuation or retirement fund':

None of the four descriptors 'provident', 'benefit', 'superannuation' or 'retirement fund' in subparagraph (a)(ii) of the definition of 'superannuation fund for foreign residents' in section 118-520 of the ITAA 1997 are defined. The terms have, however, been the subject of judicial consideration.

The courts have held that for a fund to be a 'provident, benefit, superannuation or retirement fund', the fund 's sole purpose must be to provide superannuation benefits, that is, benefits to a member upon the member reaching a prescribed age or upon their retirement, death or other cessation of employment (Scott v. FC of T (No 2) (1966) 14 ATD 333; (1966) 10 AITR 290, per Windeyer J; Mahony v. FC of T (1967) 14 ATD 519, per Kitto J; Walstern Pty Ltd v. Commissioner of Taxation (2003) 138 FCR 1; 2003 ATC 5076; (2003) 54 ATR 423, per Hill J and Cameron Brae Pty Ltd v. Federal Commissioner of Taxation (2007) 161 FCR 468; 2007 ATC 4936; (2007) 67 ATR 178, per Stone and Allsop JJ).

The above extract establishes that for a fund to qualify as a provident, benefit, superannuation or retirement fund, it must have the sole purpose of providing retirement benefits or benefits in other allowable contemplated contingencies (such as death, disability or serious illness).

In this case, Fund A is responsible for administering several plans that provide retirement allowances and other benefits for employees of the participating employers. The only circumstances that a member of one of the Funds may directly be able to receive benefits or payments prior to reaching the age of xx is if the member:

a)    dies (e.g. death benefits or life insurance benefits).

b)    has a permanent medical condition (e.g. disability benefits).

c)    ceases being employed by a participating employer and receives a refund of employee contributions and interest (in the case of the members of some of the Funds).

d)    has at least xx years of service (in the case of Plan A).

In the circumstances, the Funds have a purpose of providing a pool of assets for use by current and former employees of the participating employers only on their retirement, death or contemplated contingencies such as becoming permanently disabled or financial hardship.

The Commissioner also accepts that the ability of some members to receive benefits or payments prior to retirement, and without the occurrence of a contemplated contingency, is a minor and incidental feature of the Funds in the circumstances. The factors that point to this conclusion include that:

•         substantial taxes or penalties may apply to any such refund or benefit received by a member (creating a disincentive to withdrawing funds in this manner).

•         the refunds paid to members by Fund A in the year ended 30 June 20xx were insignificant relative to the other benefits paid by Fund A.

Therefore, the Funds satisfy this requirement.

3. Established in a foreign country

The Funds were all established in the Foreign Jurisdiction.

Therefore, the Funds satisfy this condition.

4. Was established and maintained only to provide benefits for individuals who are not Australian residents

The Funds were established to provide benefits for employees of the participating employers in the Foreign Jurisdiction. As such, the Commissioner is satisfied that the Funds were all established, and are maintained, only to provide benefits for individuals who are not Australian residents.

Therefore, the Funds satisfy this condition.

5. Central management and control (CM&C)

Paragraphs 20 and 21 of Taxation Ruling TR 2008/9 Income tax: meaning of 'Australian superannuation fund' in subsection 295-95(2) of the Income Tax Assessment Act 1997 (TR 2008/9) states:

20. The CM&C of a superannuation fund involves a focus on the who, when and where of the strategic and high level decision making processes and activities of the fund. In the context of the operations of a superannuation fund, the strategic and high level decision making processes includes:

•         formulating the investment strategy for the fund;

•         reviewing and updating or varying the fund's investment strategy as well as monitoring and reviewing the performance of the fund's investments;

•         if the fund has reserves - the formulation of a strategy for their prudential management; and

•         determining how the assets of the fund are to be used to fund member benefits.

21. The other principal areas of operation of a superannuation fund that form part of the day-to-day or operational side of the fund's activities will not constitute CM&C. These activities do not form part of the CM&C of the fund because they are not of a strategic or high level nature. Rather, these activities are of a more formalistic or administrative nature. Examples of such activities include the acceptance of contributions that are made on a regular basis, the actual investment of the fund's assets, the fulfilment of administrative duties and the preservation, payment and portability of benefits.

The strategic and high level decision making processes of the Funds are predominately:

•         formulating and reviewing the investment strategy of the plans listed in the relevant facts and circumstances; and

•         determining how the assets of the plans will be used to fund member benefits.

These decision making processes are predominantly performed by the various boards of trustees for the Funds. Fund A and its board of trustees perform some of the relevant decision making processes for the other Funds.

Furthermore, all relevant board meetings in relation to the Funds are held in the Foreign Jurisdiction and there is no evidence that any of the decision-makers are Australian residents.

The Commissioner is satisfied that the central management and control of Funds is in the Foreign Jurisdiction and is carried out by individuals who are not Australian residents. Therefore, the Funds satisfy this requirement.

6. Subsection 118-520(2)

No amount paid to the Funds or set aside for the Funds has been or can be deducted (and no tax offset has been allowed or is allowable for such an amount) under the ITAA 1936 or ITAA 1997.

Therefore, the Funds satisfy these requirements.

7. Conclusion

As all of the above requirements are satisfied, the Funds each meet the requirement of being a superannuation fund for foreign residents as defined by section 118-520 of the ITAA 1997.

The Fund is exempt from income tax in the country in which the non-resident resides

The Funds are exempt from Foreign Jurisdiction taxation under Foreign Legislation.

Therefore, the Funds satisfy this requirement.

Subsection 128B(3CA)

The Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 introduced extra requirements that must be met for paragraph 128B(3)(jb) to apply. Generally, these extra requirements apply to income derived from 1 July 2019.

Relevantly:

•         The Fund must satisfy the 'portfolio interest test' in relation to the test entity (subsection 128B(3CC)

•         The Fund must satisfy the 'influence test' (subsection 128B(3CD) in relation to the test entity, and

•         The income cannot otherwise be non-assessable non-exempt income of the Fund because of:

a.    Subdivision 880-C of the ITAA 1997, or

b.    Division 880 of the Income Tax (Transitional Provisions) Act 1997.

1. The Fund satisfies the 'portfolio interest test'

Subsection 128B(3CC) states:

A superannuation fund satisfies the portfolio interest test in this subsection in relation to the test entity at a time if, at that time, the total participation interest (within the meaning of the Income Tax Assessment Act 1997) the superannuation fund 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 (within the meaning of that Act) 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.

In this case, the Funds do not hold more than 1% ownership of any of the entities listed in the 'Australian Investments' section of the relevant facts and circumstances of the Ruling. The Funds' Australian Investments also meet certain 'Equity Characteristics' listed in that same section.

In the circumstances, the Commissioner is satisfied that the total participation interest the Funds hold in the test entities:

•         is less than 10% pursuant to paragraph 128B(3CC)(a) at all relevant times; and

•         would be less than 10% in the circumstances detailed in paragraph 128B(3CC)(b) at all relevant times.

The Funds each therefore satisfy the 'portfolio interest test' in respect of the Australian Investments listed in the relevant facts and circumstances of this Ruling.

2. The Fund satisfies the 'influence test'

Subsection 128(3CD) states:

A superannuation fund 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) the superannuation fund:

(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 the superannuation fund (whether those directions, instructions or wishes are expressed directly or indirectly, or through the superannuation fund acting in concert with others).

As such, there are two distinct sub-tests within the influence test.

Sub-test 1 of the influence test, as contained in paragraph 128B(3CD)(a), assesses whether the Fund 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 Fund 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 Fund, in its own right, holds the ability to approve or veto decisions which go to the control or direction of the test entity.

Sub-test 2 of the influence test, as contained in paragraph 128B(3CD)(b), 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 Fund.

The following points are relevant in considering whether the Funds have influence of a kind described in subsection 128B(3CD) in relation to the 'test entities':

•         The Funds have no involvement in the day-to-day management of the business of those test entities;

•         The Funds have no right to appoint a director to the Board of Directors of those test entities;

•         The Funds have no right to representation on any investor representative or advisory committee (or similar) of those test entities;

•         The Funds have no ability to direct or influence the operation of those test entities outside of the ordinary rights conferred by the equity interests held; and

•         The Funds only hold rights to vote in proportion to their equity interest in each of those test entities.

Consequently, the Commissioner accepts that the Funds do not have influence of a kind described in subsection 128B(3CD).

3. Otherwise non-assessable non-exempt

The Funds' income from the Australian Investments is not non-assessable non-exempt income because of Subdivision 880-C of the ITAA 1997 or Division 880 of the Income Tax (Transitional Provisions) Act 1997.

Conclusion

The Funds are excluded from withholding tax in relation to interest, dividend and non-share dividend income derived from the Australian Investments listed in the relevant facts and circumstances of this Ruling.