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You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of private advice

Authorisation Number: 1051808658456

NOTICE

This edited version has been found to be misleading or incorrect. It does not represent the ATO’s view of the relevant law.

This notice must not be taken to imply anything about:

    the binding nature of the private advice issued to the applicant

    the correctness of other edited versions.

Edited versions cannot be relied upon as precedent or used for determining how the ATO will apply the law in other cases.

Date of advice: 24 February 2021

Ruling

Subject: Withholding tax application - superannuation fund for foreign residents

Question

Are the Pension Plans, investing through the Fund, excluded from liability to withholding tax on interest, dividend and non-share dividend income derived from the investments listed in Appendix 1 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:

1 January 20XX to 31 December 20XX

The scheme commences on:

1 January 20XX

Relevant facts and circumstances

The Fund is administered by a US domiciled s81-100 group trust (the Group Trust) and was established in 1994.

The Group Trust can establish one or more funds under the Trust Agreement, however, each fund will be held and treated as a separate Fund. Therefore, the Fund is treated as a separate trust in its own right.

The Fund invests commingled/pooled funds of pension and profit-sharing plans or other employee benefit plans on behalf of multiple participating trusts. Those participating trusts must meet the requirements of s401(1) of the Internal Revenue Code of 1986 (the Code) and be exempt from tax under section 501(a) of the Code, and must be expressly permitted to invest its assets through a collective or comingled fund/group trust which also qualifies under s401(a), (a)(24) a plan described in s818(a)(6), s403(b)(7), (9) of the Code.

All Pension Plan income or loss is derived from the Fund's investment appreciation or depreciation.

The Fund does not administer any defined contribution or defined benefit plans its own right, and its investments are overseen by the Group Trust.

A 'Unit' is any part of equal value into which the Fund is divided. Each Unit represents an equal right to share in the Fund and in its net earnings, profits and losses and no Unit has priority or preference over any other Unit of the Fund.

Pension Plans can only redeem funds through a monthly redemption request.

The Fund requires 30 days' written notice from Pension Plans for termination of investments.

The Trustee of each participating Pension Plan is the entity which has the authority to invest or to appoint investment managers to invest the assets of that Plan in the Fund.

The Fund's Trust agreement prohibits, prior to the satisfaction of all liabilities with respect to the Participating Plans which have an interest in the Fund, any part of the equitable share of Participating Plans from being used for or diverted to purposes other than for the exclusive benefit of such Participating Plans.

The Fund and the and Pension Plans are indefinitely continuing funds.

The Fund and the Pension Plans were established in a foreign country.

The Fund was established and maintained only to provide benefits for the Pension Plans. The Pension Plans were established and are maintained only to provide benefits for individuals who are not Australian residents.

The central management and control of the Fund and the Pension Plans is carried on outside of Australia by entities none of whom are Australian residents.

An amount paid to or set aside for the Fund or ultimately for the Pension Plans has not been and cannot be deducted under the ITAA 1997 or ITAA 1936, and a tax offset has not been allowed and is not allowable for such an amount.

The income received by the Fund and Pension Plans 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.

Trust agreement

The Trust agreement provides that all money and other property held by the Trustee under the Trust agreement shall be held by the Trustee and dealt with in accordance with the provision of the Trust agreement.

The Trust agreement also provides that the Fund will be invested and reinvested without distinction between principal and income in securities. Such investment and reinvestment is authorised whether or not the property acquired is productive of income, is marketable, or constitutes a wasting asset provide however that nothing in the agreement is deemed to authorise any investment or reinvestment in violation of the requirements of ERISA.

The types of investments and reinvestments that can be made by the Fund include:

(a)       common stocks, preferred stocks;

(b)       Bonds;

(c)       debentures;

(d)       mortgages on real or personal property wherever situated;

(e)       equipment or other trust certificates;

(f)        notes or other evidences of indebtedness, or any other securities, including futures contracts, options and derivative instruments, certificates of deposit, demand or time deposits (including any such deposit with any bank or trust company servings as Trustee);

(g)       shares of investment companies and mutual funds;

(h)       interests in partnerships and trusts, insurance policies and contracts; and

(i)         in other property or joint or other part interest in property (including without limitations, part interests in bonds and mortgages or notes and mortgages), real or personal, foreign (including non-United States) or domestic and of any kind, class or character.

The Trust Agreement sets out the administrative powers that the Trustee (as a directed Trustee) is authorised and empowered to exercise in its sole discretion on behalf of the group trust, including:

(a)       employ suitable agents, custodians and counsel and (except for Subcustodians) to pay their reasonable expenses and compensation out of the Group Trust;

(b)       make, execute and deliver, as Trustee, any and all deeds, leases, mortgages, conveyances, waivers, releases, subscription documents, or other instruments in writing necessary or desirable for the accomplishment of any of the foregoing powers, provided that in connection with the acquisition, holding or disposition of Financial Assets other than publicly-traded securities, that the investment advisor, has provided written direction in a form satisfactory to Trustee;

(c)       hold property of the Group Trust in its own name or in the name of a nominee (with or without the addition of words indicating that such property is held in a fiduciary capacity) including the nominee of any clearing corporation with which Securities of the Group Trust may be deposited and, in the case of foreign Securities, the nominee of any foreign securities depository, foreign bank, or other entity with which the Trustee maintains the custody of such foreign Securities pursuant to authorization conferred by regulations promulgated by the Department of Labor under Section 404(b) of ERISA, and to hold any investment in bearer form; but the books and records of the Trustee shall at all times show that all such investments are part of the Group Trust;

(d)       generally to do all ministerial acts, whether or not expressly authorised, that the Trustee may deem necessary or desirable in carrying out its duties under the Trust agreement;

(e)       set up one or more Securities Accounts in the name of the Group Trust (or in another name requested by the Trustee that is acceptable to the investment advisor) for Financial Assets;

(f)        set up one or more accounts in the name of Group Trust (or in another name requested by the Trustee that is acceptable to the investment advisor) ('Cash Account') for any and all cash in any currency received by or on behalf of the Trustee for the account of the Group Trust;

(g)       effect book entries on a contractual settlement date accounting basis with respect to the settlement of transactions in those markets where the Trustee generally offers contractual settlement date accounting;

(h)       with respect to settlement of a transaction that is not posted to the account on the contractual settlement date, the Trustee will post the transaction on the date on which the ash or financial assets received as consideration for the transaction is actually received and cleared;

(i)         monitor information publicly available in the applicable market about forthcoming income payments on the Financial Assets and promptly notify the group trust of such information (income collection);

(j)         monitor information distributed to holders of Financial Assets about upcoming shareholder meetings, promptly notify the group trust of such information and act in accordance with the group trust's instruction in relation such meetings, to create a proxy voting service with respect to certain markets; and

(k)       provision of tax relief services.

The Trust agreement provides that admissions and withdrawals from the Fund are not permitted except on the basis of the Unit into which it is divided and except as of a Valuation Date of such Fund.

Admissions to or withdrawal from the Fund must be made in writing and filed with the investment advisor, which will in turn advise the Trustee of the notice or request.

Withdrawal requests must be submitted not less than 10 business days before the Valuation Date or as otherwise provided by the Fund Rules.

The Trustee may consent to the investment advisor waiving the 10-day notice requirement if the investment advisor determines that the waiver will not have any adverse effect on the Fund.

Withdrawals will be made as of the close of business on the Valuation Date following written notice of the withdrawal, and the Units withdrawn will be cancelled as of that Valuation Date.

The Group Trust must be satisfied that an entity is a Participating Plan and provide written authorisation permitting and admission.

The Group Trust can credit the Participant Account for a Participating Plan to be invested in a Fund. All contributions from a Participating Plan to the Fund will be posted in the relevant Participant Account.

Benefits provided by the Pension Plans

Each of the Pension Plans was established in the United States by way of trust deed for the benefit of various Government or non-profit sector employees of different counties, authorities and institutions.

Membership of the relevant Pension Plan is a mandatory condition of employment.

The Pension Funds are funded by a combination of member and employer contributions, as well as the investment income earned on those contributions.

Each Pension Plan has its own rules and exceptions, but broadly all employees of a particular class who are classified as such and are regularly compensated are members under each of the Pension Plans.

The Pension Plans provide broadly similar benefits to members and their dependents. They do not provide benefits other than those related to old age retirement, disability or death.

Employees are entitled to receive retirement benefits if they are a member of the relevant Pension Plan, they reach retirement age, their membership has vested, and they have not withdrawn from being a member of the relevant Pension Plan. The various requirements for vesting vary from plan to plan.

A member leaving a Pension Plan may be eligible to transfer their contributions and service credit to a new fund. On doing so, they are no longer a member of the Pension Plan and lose any entitlement to a retirement benefit.

Australian investments

The Fund, investing on behalf of the Pension Plans, have invested in Australian equity investments listed in Appendix 1. These equity investments all have the following characteristics:

(a)       The Pension Plans hold less than 10% of the total participation interests in each entity and have never held more than a 10% participation interest.

(b)       The Pension Plans will hold less than 10% of the total participation interests in each entity in the circumstances detailed in paragraph 128B(3CC)(b) of the ITAA 1936.

(c)       Neither the Pension Plans, nor any related parties, have involvement in the day to day management of the business of any of the Australian companies.

(d)       Neither the Pension Plans, nor any related parties, have the right to appoint a director to the Board of Directors of the Australian company or equivalent role in any of the Australian companies.

(e)       Neither the Pension Plans, nor any related parties, has the ability to direct or influence the operation of the Australian company outside of the ordinary rights conferred by the equity interest held.

(f)        The Pension Plans have not entered into or received any side letters, arrangements or agreements.

(g)       The Pension Plans do not hold any veto rights on security holder votes.

Other relevant facts

The Pension Plans do not and cannot deduct amounts under either the Income Tax Assessment Act 1997 (ITAA 1997) or the ITAA 1936 for amounts paid to it.

The Pension Plans have not been allowed a tax offset or a tax offset is not allowable for an amount that has been paid to it.

The Pension Plans submitted Letters from the United States Internal Revenue Service which state that the Pension Plans are exempt from taxation in the US.

Income of the Pension Plans is not non-assessable non-exempt income because of:

(i)         Subdivision 880-C of the ITAA 1997, or

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

Relevant legislative provisions

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

Reasons for decision

Section 128B of the 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), interest income (subsection 128B(2) of the ITAA 1936) as well as other income prescribed in that section.

Broadly, paragraph 128B(3)(jb) of the ITAA 1936 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). Relevantly, paragraph 128B(3)(jb) of the ITAA 1936 applies to:

(jb) income that:

(i)    is derived by a non-resident that is a superannuation fund for foreign residents; and

(ii)   consists of interest, or consists of dividends or non-share dividends paid by a company that is a resident; and

(iii)  is exempt from income tax in the country in which the non-resident resides;

Further, from 1 July 2019, the extra requirements in subsection 128B(3CA) of the ITAA 1936 must also be met.

The requirements for the exemption from withholding tax under paragraph 128B(3)(jb) of the ITAA 1936 will be discussed below.

The Pension Plans are very similar in their operation and share common rules as they are all governed at least in part by section 401(a) and section 818(a)(6) of the Internal Revenue Code of 1986. As a result, all participating funds, although operating independently, are largely bound together under one uniform retirement law. As such, the reasons provided below will be common to all of the Pension Plans, and to the extent a Pension Fund has circumstances unique to it, these will be addressed separately.

Subparagraph 128B(3)(jb)(i) of the ITAA 1936

Are the Pension Plans non-resident?

Each of the Pension Plans is not a resident of Australia for income tax purposes. The Pension Plans were all established in the US, and their Board of Trustees, to the extent that they have such a Board are also based in the US.

Therefore, the Pension Plans satisfy this requirement.

Are each of the Pension Plans a 'superannuation fund for foreign residents'?

For the Pension Plans to be each considered a superannuation fund for foreign residents for the purposes of paragraph 128B(3)(jb) of the ITAA 1936, they must satisfy the requirements set out in section 118-520 of the ITAA 1997, which states:

(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 is 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 .

Are each of the Pension Plans indefinitely continuing funds?

The legislation provides no guidance on the meaning of 'indefinitely continuing'. It is not a technical legal expression, and the ordinary meanings of indefinitely and continuing involve little ambiguity or controversy.

The Macquarie Dictionary, [Online], viewed 10 February 2021, www.macquariedictionary.com.au defines 'indefinitely' and 'continuing' as follows:

Indefinite:

1. not definite; without fixed or specified limit; unlimited: an indefinite number.

2. not clearly defined or determined; not precise.

•indefinitely, adverb

Continue: (verb (Continued, continuing))

1. to go forwards or onwards in any course or action; keep on.

2. to go on after suspension or interruption.

3. to last or endure.

4. to remain in a place; abide; stay.

5. to remain in a particular state or capacity.

Each of the Pension Plans is a separate pension fund for a different class of persons. Each pension plan that underlies each fund is a governmental pension plan established and maintained for government employees, including county and authority, or, a non-profit sector pension plan, established and maintained for non-profit sector employees, including institutions. Each of the Pension Plans is established to provide defined benefit pensions to public service, or, non-profit sector employees for their retirement. There is no indication that any of the Pension Plans are to be wound up in the near future, and none of the Pension Plans have a termination date.

There is sufficient evidence to accept that each of the Pension Plans will continue to operate for an indefinite period of time.

Therefore, the Pension Plans satisfy this requirement.

Are each of the Pension Plans 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 1997 or the ITAA 1936.

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 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).

The Pension Plans provide retirement, disability, death and survivor benefits to members and their dependents. The Pension Plans also provide for the return of contributions to contributors where their membership has not vested, and the transfer of funds to other pension plans upon termination of employment.

The Pension Plans are defined benefit schemes where the benefits paid to the relevant contributor are calculated based on a number of factors defined by statute, including the amount contributed, the number of years the person has contributed, and the age of the person drawing benefits.

There are no benefits drawn from the Pension Plans to contributors and beneficiaries beyond those as prescribed above. The Commissioner accepts that the alternate circumstances of access to the funds, being incapacity, death, the transfer of funds to another retirement fund, and a return of contributions in very limited circumstances, align to the contemplated contingencies of a provident, benefit, superannuation or retirement fund.

All monies of the Pension Plans are amounts used solely for the purposes of administering and paying out benefits.

As both the key objective of the Pension Plans and the operation of them have the sole purpose of providing retirement benefits, the Commissioner accepts the Pension Plans are considered to each be a 'provident, benefit, superannuation or retirement fund'.

Therefore, the Pension Plans satisfy this requirement.

Established in a foreign country

Each of the Pension Plans were established in and are tax residents of the US.

Therefore, the Pension Plans satisfy this requirement.

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

The Pension Plans were established and are maintained in the US for eligible employees of various government and non-profit sectors of different counties, authorities and institutions. The Pension Plans operate to provide retirement benefits for its members in the US.

It is considered that the possibility of a very small number of members being returned residents or becoming Australian residents after ceasing eligible employment is incidental and should not be taken to conclude that the Pension Plans, in this case, have not been established and are not maintained only to provide benefits for non-residents, based on the rules and operation of the Pension Plans.

Therefore, the Pension Plans satisfy this requirement.

Central management and control (CM&C) carried on outside Australia by entities none of whom is an Australian resident

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.

Furthermore, paragraph 10 and 11 of the Taxation Ruling TR 2018/5 Income tax: Central Management and Control test of residency (TR 2018/5) states:

10. Central management and control refers to the control and direction of a company's operations. It does not refer to a physical location in which the control and direction of a company is located and may ultimately be exercised in more than one location.

11. The key element in the control and direction of a company's operations is the making of high-level decisions that set the company's general policies and determine the direction of its operations and the type of transactions it will enter.

The Pension Plans are established and managed by a board operating in the capacity of trustee. Each of the boards acting as trustees constitute legal persons in the US, and undertake the management and control of the relevant Pension Plan, including its investment strategy.

Based on these facts, it is clear that all of the key functions of each of the Pension Plans are exercised in the US, including the control and direction of each of the Pension Plans' investments, strategies, administration, and operations. As such it is reasonable to conclude that the central management and control of each of the Pension Plans is exercised in the US by entities that are not Australian residents.

Therefore, the Pension Plans satisfy this requirement.

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

An amount paid to the Pension Plans or set aside for the Pension Plans has not been and cannot be deducted under the ITAA 1997. A tax offset has not been allowed nor would be allowable for any amount paid to the Pension Plans or set aside for the Pension Plans.

Therefore, the Pension Plans satisfy this requirement.

Conclusion

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

The Fund derives the relevant income

In order to be excluded from withholding tax under paragraph 128B(3)(jb) of the ITAA 1936, the Pension Plans must derive the relevant interest and dividend income. This requires consideration of the relationship between the Fund and the Pension Plans, and what type of relationship this is for Australian tax purposes.

It is considered the relationship between the Fund and the Pension Plans constitutes a trust relationship. Income received by the Fund is income of a trust estate. It must then be determined whether the Pension Plans derive the relevant income.

Relevant to this analysis is subsection 128A(3) of the ITAA 1936 which provides:

For the purposes of this Division, a beneficiary who is presently entitled to a dividend, to interest or to a royalty included in the income of a trust estate shall be deemed to have derived income consisting of that dividend, interest or royalty at the time when he or she became so entitled.

The Commissioner has accepted that subsection 128A(3) of the ITAA 1936 can apply to deem beneficiaries of non-resident trust estates to have derived the relevant income in limited circumstances.

ATO Interpretative Decision ATO ID 2008/61 Withholding Tax Exemption: interest and dividends paid by an Australian resident and received by a Dutch Stichting as unitholder in an Irish Common Contractual Fund (ATOID 2008/61)is an example of this. In this ATOID, an Irish CCF was found to be a trust for Australian income tax purposes. The terms of the deed states that income of the CCF accrued to unitholders as it arose. As such, the unitholder would have a present legal right to demand and receive payment of the income, and therefore was presently entitled to the dividend and interest income received by the CCF. The requirements in subsection 128A(3) were therefore satisfied, and the unitholder was deemed to have derived the income at the time when it became presently entitled. Being an entity entitled to be excluded from withholding tax under paragraph 128B(3)(jb) of the ITAA 1936, the unitholder was subsequently exempt from withholding tax.

As such, the critical factor is to determine whether the Pension Plans are 'presently entitled' to the income of the Fund.

Present entitlement

The requirement in subsection 128A(3) of the ITAA 1936 of present entitlement to a share of the income of the trust estate refers to a present vested right to demand and receive payment of the whole or part of what has been received by the trustee as income and, retaining that character in the trustee's hands, is legally available to be distributed to those entitled to it as beneficiaries under the trusts.

Having considered the circumstances of the Fund, the Pension Plans, and the Trust Arrangement, the Commissioner accepts that the Pension Plans are presently entitled to the interest and dividend income as it arises to the Fund. As such, for the purposes of Division 11A of the ITAA 1936 these amounts retain their character when the Pension Plans become presently entitled.

Therefore, the Pension Plans are deemed to have derived the relevant dividend and interest income for the purposes of Division 11A of the ITAA 1936. As such, the Pension Plans are considered to have derived dividend and interest income for the purposes of determining a withholding tax liability.

Subparagraph 128B(3)(jb)(ii) of the ITAA 1936

Paragraph 128B(3)(jb) of the ITAA 1936 will only apply to interest, or to dividends and non-share dividends paid by Australian resident companies to the Fund to which the Pension Plans are presently entitled.

The Fund, with its presently entitled Pension Plan beneficiaries, will receive interest income from the Australian investments listed in Appendix 1, along with dividend and non-share dividend income from companies who are residents of Australia for tax purposes.

Therefore, the Pension Plans will satisfy this requirement.

Subparagraph 128B(3)(jb)(iii) of the ITAA 1936

The Pension Plans are exempt from income tax in the US under section 401(a) of the US Internal Revenue Code.

Therefore, the Pension Plans satisfy this requirement.

Subsection 128B(3CA) of the ITAA 1936

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) of the ITAA 1936 to apply.

Generally, these extra requirements apply to income derived from 1 July 2019.

Accordingly:

(i)    The Pension Plans must satisfy the 'portfolio interest test' in relation to the test entity (subsection 128B(3CC) of the ITAA 1936)

(ii)   The Pension Plans must satisfy the 'influence test' (subsection 128B(3CD) of the ITAA 1936) in relation to the test entity, and

(iii)  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.

The Pension Plans satisfy the 'portfolio interest test'

Subsection 128B(3CC) of the ITAA 1936 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 the case of the Fund, the relevant 'test entities' are the entities listed in Appendix 1 to the relevant facts and circumstances of the Ruling.

Subsection 128B(3CB) defines the test entity to be either the entity that paid the interest, dividends or non-share dividends or, if subsection 128A(3) of the ITAA 1936 applies in relation to a resident trust estate, that trust estate.

Subsection 995-1(1) of the ITAA 1997 defines total participation interest to have the meaning given by section 960-180 of the ITAA 1997, which states:

An entity's total participation interest at a particular time in another entity is the sum of:

(a) the entity's *direct participation interest in the other entity at that time; and

(b) the entity's *indirect participation interest in the other entity at that time.

A 'direct participation interest' that the Pension Plans will have in a test entity is defined in the table in subsection 960-190(1) of ITAA 1997 and depends on what type of entity the other entity is. It is not relevant in this particular case as the Pension Plans hold the relevant Australian investments through the Fund.

Subsection 960-185(1) of the ITAA 1997 provides that an entity's indirect participation interest in a test entity is established by multiplying its direct participation interest in an intermediate entity by the sum of the intermediate entity's direct and indirect participation interests in the test entity.

All of the underlying Pension Plans therefore have an indirect participation interest in the Australian assets as defined in subsection 960-185(1) of the ITAA 1997 (as they hold the assets through their interest in the Fund). This means that the total participation interest of each of the underlying Pension Plans will be the Fund's participation interest in the Australian company or MIT multiplied by the Pension Plans' proportional interest in the Fund.

The Pension Plans currently do not hold more than 10% ownership of any of the Australian companies or MITs listed in Appendix 1. Further, the Pension Plans would hold less than 10% of the total participation interests in each Australian company or MIT listed in Appendix 1 in the circumstances detailed in paragraph 128B(3CC)(b) of the ITAA 1936.

The Pension Plans therefore satisfy the 'portfolio interest test' in respect of their current investments listed in Appendix 1.

The Pension Plans satisfy the 'influence test'

Subsection 128B(3CD) of the ITAA 1936 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) of the ITAA 1936, assesses whether the Pension Plans are 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 Pension Plans are 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 Pension Plans, in their own right, hold 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) of the ITAA 1936, 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 Pension Plans.

In respect of the investments listed in Appendix 1 of the relevant facts and circumstances to this Ruling:

(a)    The Pension Plans hold less than 10% of the total participation interests in each entity and have never held more than a 10% participation interest.

(b)    The Pension Plans will hold less than 10% of the total participation interests in each entity in the circumstances detailed in paragraph 128B(3CC)(b) of the ITAA 1936.

(c)    Neither the Pension Plans, nor any related parties, have involvement in the day to day management of the business of any of the Australian companies.

(d)    Neither the Pension Plans, nor any related parties, have the right to appoint a director to the Board of Directors of the Australian company or equivalent role in any of the Australian companies.

(e)    Neither the Pension Plans, nor any related parties, hold the right to representation on any investor representative or advisory committee (or similar) of any of the Australian companies.

(f)     Neither the Pension Plans, nor any related parties, has the ability to direct or influence the operation of the Australian company outside of the ordinary rights conferred by the equity interest held.

(g)    The Pension Plans have not entered into or received any side letters, arrangements or agreements.

(h)    The Pension Plans do not hold any veto rights on security holder votes.

Based upon the above, the Commissioner accepts that the Pension Plans do not have influence of a kind described in subsection 128B(3CD) of the ITAA 1936.

Otherwise non-assessable non-exempt

The income received by the Pension Plans will not be 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.

The Pension Plans therefore satisfy this condition in respect of its current investments listed in Appendix 1.

Conclusion

Having regard to the requirements of paragraph 128B(3)(jb) of the ITAA 1936, the Pension Plans, investing through the Fund, are excluded from withholding tax in relation to interest, dividend and non-share dividend income derived from current investments (listed in Appendix 1 of the relevant facts and circumstances of this private ruling).