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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: 1051904477499

Date of advice: 21 October 2021

Ruling

Subject: Exempt income - sovereign immunity

Issue 1

Sovereign Immunity - Division 880 of the Income Tax Assessment Act 1997

Question 1

Is ordinary and statutory income derived by the Fund from its Australian Investments listed in Appendix 1 of this Ruling (the Test Entities) not assessable and not exempt income under section 880-105 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

To the extent that ordinary and statutory income derived by the Fund from its Australian Investments listed in Appendix 2 of this Ruling (the Stapled Securities) satisfies subparagraph 880-105(1)(c)(i) and subparagraph 880-105(1)(c)(ii) of the ITAA 1997, is the ordinary or statutory income derived from the Stapled Securities not assessable and not exempt income under section 880-105 of the ITAA 1997?

Answer

Yes.

Question 3

To the extent that the answer to Question 1 and Question 2 is yes, is any capital gain made by the Fund, in respect of its Australian investments listed in Appendix 1 and 2 of this Ruling, disregarded under section 880-115 of the ITAA 1997?

Answer

Yes.

Issue 2

Sovereign Immunity (Transitional Provisions) - Division 880 of the Income Tax (Transitional Provisions) Act 1997

Question 4

Is the ordinary and statutory income derived by the Fund from its Australian Investments listed in Appendix 3 of this Ruling not assessable and not exempt income under section 880-5 of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997)?

Answer

Yes.

This ruling applies for the following periods:

For Questions 1, 2 and 3:

Year ended 30 June 20XX

For Question 4:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Fund

The Fund was established under the laws of the Foreign Country.

The Fund comprises the official reserves of the Government of the Foreign Country.

The Central Bank manages the Fund.

The main functions of the Central Bank are:

• keeping the value of the national currency of the Foreign Country stable

• managing the Fund

• promoting the safety of the Foreign Country's banking system, and

• developing the Foreign Country's financial infrastructure.

Purpose and Functions of the Fund

Under the laws of the Foreign Country, the Fund is to be used primarily for purposes affecting the exchange value of the currency of Foreign Country and for other incidental purposes.

The Fund may be used to maintain the stability and the integrity of the monetary and financial systems of the Foreign Country, having regard to the primary purpose of the Fund.

The Fund may be invested in foreign exchange, gold or silver, securities or other assets.

The Fund does not provide services or undertake any other activities other than the holding of equities and debt in listed and non-listed entities.

Funding and Liabilities

The Fund is funded solely by monies raised by the Government of the Foreign Country for a public purpose and consists of financial surplus reserves.

The monies being invested by the Fund are and will remain government monies. All returns on investments made by the Fund are either reinvested or returned to the Government of the Foreign Country.

All monies provided to the Fund and income derived from investments held by the Fund are ultimately owned by the Government of the Foreign Country. In the event the Fund is liquidated or dissolved, all assets and monies remain part of the Government of the Foreign Country.

The Australian Investments in Appendix 1, Appendix 2 and Appendix 3 of this Ruling constitute part of the official foreign reserves of the Government of the Foreign Country.

All of the Australian Investments are made in the name of the Fund, which is the beneficial and legal owner of the Australian Investments.

The Fund does not receive any other sources of funding.

A key part of the liabilities of the Fund is the Monetary Base.

Fiscal reserves of the Government of the Foreign Country are deposited with the Fund.

The Fund's expenses include staffing costs and expenses incurred in its operations.

Investment in the Test Entities - Appendix 1

The Fund holds various interests in the Test Entities as listed in Appendix 1 of this Ruling.

The Fund acquired the Australian Investments listed in Appendix 1 of this Ruling on or after 28 March 20XX.

To the best of the Fund's knowledge, the Australian Investments held in the Test Entities listed in Appendix 1 of this Ruling have the following characteristics:

a. The Fund and all members of its sovereign entity group hold collectively less than 10% of the total participation interests in each of the Test Entities.

b. The Fund and all members of its sovereign entity group would hold collectively less than 10% of the total participation interests in the Test Entities in the circumstances detailed in paragraph 880-105(4)(b) of the ITAA 1997.

c. Neither the Fund, nor any members of its sovereign entity group, has involvement in the day-to-day management of the business of any of the Test Entities.

d. Neither the Fund, nor any members of its sovereign entity group, has the right to appoint a director to the Board of Directors of any of the Test Entities.

e. Neither the Fund, nor any members of its sovereign entity group, holds the right to representation on any investor representative or advisory committee (or similar) of the Test Entities.

f. Neither the Fund, nor any members of its sovereign entity group, has the ability to direct or influence the operation of the Test Entities outside of the ordinary rights conferred by the interest held.

g. Voting rights, if any, of debt interests in each investment held by the Fund, and any members of its sovereign entity group, do not exceed the proportion of debt interests held by the Fund and any members of its sovereign entity group.

h. The Fund's interests, in its own right or when combined with the other interests held within its sovereign entity group, do not provide an entitlement to either directly or indirectly determine the identity of any person who make decisions that comprise the control and direction of the Test Entities' operations.

i. No person involved in the control and direction of the Test Entities' operations is accustomed or obliged to act in accordance with the directions, instructions or wishes of the Fund or members of the Fund's sovereign entity group.

Investment in the Stapled Securities - Appendix 2

The Fund holds various interests in the Stapled Securities as listed in Appendix 2 of this Ruling.

The Fund acquired the Australian Investments listed in Appendix 2 of this Ruling on or after 28 March 20XX.

To the best of the Fund's knowledge, the Australian Investments held in the Stapled Securities listed in Appendix 2 of this Ruling have the following characteristics:

a. The Fund and all members of its sovereign entity group hold collectively less than 10% of the total participation interests in each of the Stapled Securities.

b. The Fund and all members of its sovereign entity group would hold collectively less than 10% of the total participation interests in the Stapled Securities in the circumstances detailed in paragraph 880-105(4)(b) of the ITAA 1997.

c. Neither the Fund, nor any members of its sovereign entity group, has involvement in the day-to-day management of the business of any of the Stapled Securities.

d. Neither the Fund, nor any members of its sovereign entity group, has the right to appoint a director to the Board of Directors of any of the Stapled Securities.

e. Neither the Fund, nor any members of its sovereign entity group, holds the right to representation on any investor representative or advisory committee (or similar) of the Stapled Securities.

f. Neither the Fund, nor any members of its sovereign entity group, has the ability to direct or influence the operation of the Stapled Securities outside of the ordinary rights conferred by the interest held.

i. No person involved in the control and direction of the Stapled Securities' operations is accustomed or obliged to act in accordance with the directions, instructions or wishes of the Fund or members of the Fund's sovereign entity group.

Additional Facts - Appendix 3

The Fund acquired the Australian Investments as listed in Appendix 3 before 28 March 20XX.

The Fund applied for a private ruling in relation to its investments on or before 27 March 20XX.

The Commissioner issued a private ruling before 1 July 20XX confirming income derived by the Fund was not subject to withholding tax.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 880-105

Income Tax Assessment Act 1997 section 880-115

Income Tax (Transitional Provisions) Act 1997 section 880-5

Reasons for decision

All legislative references are to the ITAA 1997 unless otherwise specified.

Issue 1

Sovereign Immunity - Division 880 of the Income Tax Assessment Act 1997

Question 1

Detailed reasoning

Section 880-105 provides that amounts of ordinary and statutory income derived by a sovereign entity are not assessable and not exempt income if certain conditions are met. Those conditions are listed in subsection 880-105(1):

(a) the sovereign entity is covered by section 880-125; and

(b) the amount is a return on any of the following kinds of interest that the sovereign entity holds in another entity (the test entity):

(i) a *membership interest;

(ii) a *debt interest;

(iii) a *non-share equity interest; and

(i) a company that is an Australian resident at the time (the income time) when the amount becomes ordinary or statutory income of the sovereign entity; or

(ii) a *managed investment trust in relation to the income year in which the income time occurs; and

(d) the *sovereign entity group of which the sovereign entity is a member satisfies the portfolio interest test in subsection (4) in relation to the test entity:

(i) at the income time; and

(ii) throughout any 12 month period that began no earlier than 24 months before that time and ended no later than that time; and

(e) the sovereign entity group of which the sovereign entity is a member does not have influence of a kind described in subsection (6) in relation to the test entity at the income time.

These conditions are considered below.

The Fund is a covered sovereign entity

Section 880-125 states:

A *sovereign entity is covered by this section if it satisfies all of the following requirements:

(a) the entity is funded solely by public monies;

(b) all returns on the entity's investments are public monies;

(d) the entity is not any of the following:

(i) a *public non-financial entity;

(ii) a *public financial entity (other than a public financial entity that only carries on central banking activities).

These conditions are considered below.

The Fund is a sovereign entity

For an entity to be covered by section 880-125, it must be a sovereign entity. Section 880-15 defines a sovereign entity to be any of the following:

(a) a body politic of a foreign country, or a part of a foreign country;

(b) a *foreign government agency;

(i) in which an entity covered by paragraph (a) or (b) holds a *total participation interest of 100%; and

(ii) that is not an Australian resident; and

(iii) that is not a resident trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936.

A 'foreign government agency' is defined in subsection 995-1(1) as:

(a) the government of a foreign country or of part of a foreign country; or

(b) an authority of the government of a foreign country; or

The Fund was established under the laws of the Foreign Country to be used primarily for purposes affecting the exchange value of the currency of Foreign Country. It is also used to maintain the stability and the integrity of the monetary and financial systems of the Foreign Country. The Fund is managed by the Central Bank which is an authority of the Government of the Foreign Country. The Fund was therefore established to act on the authority of the Government of the Foreign Country.

The Fund therefore satisfies the definition of an authority of the government of a foreign country under paragraph 880-15(b). As such, the Fund meets the requirements of being a sovereign entity in accordance with paragraph 880-15(b) as it is a foreign government agency.

The Fund is funded solely by public monies

The phrase 'public monies' is not defined and as such takes its ordinary meaning. In the context of Division 880, this phrase essentially means monies raised by a foreign government (or part of a foreign government) for a public purpose which form part of the foreign government's (or part of the foreign government's) equivalent to Australia's Consolidated Revenue Fund (Roy Morgan Research Pty Ltd v FC of T & Anor [2011] HCA 35). This would ordinarily include general tax revenue, proceeds from the issue of government bonds, the proceeds of privatisations etc.

The Fund holds the official reserves of the Government of the Foreign Country. The Fund does not receive any other sources of funding.

Therefore, the Fund is funded solely by public monies.

All returns on the Fund's investments are public monies

The Australian Investments in Appendix 1, Appendix 2 and Appendix 3 of this Ruling constitute part of the official foreign reserves of the Government of the Foreign Country. All returns on investments made by the Fund are either reinvested or returned to the Government of the Foreign Country. All monies provided to the Fund and income derived from investments held by the Fund are ultimately owned by the Government of the Foreign Country. In the event the Fund is liquidated or dissolved, all assets and monies remain part of the Government of the Foreign Country.

The Fund's expenses include staffing costs and expenses incurred in its operations.

All circumstances in which the returns on investments may be used are considered to be for a public purpose and the returns are considered monies raised by a foreign government for those purposes.

Therefore, all returns on the Fund's investments are public monies.

The Fund is not a partnership

The Fund is a government agency. It is not a partnership.

Therefore, the Fund satisfies this requirement.

The Fund is not a public non-financial entity

Subsection 880-130(1) defines the term public non-financial entity:

An entity is a public non-financial entity if its principal activity is either or both of the following:

(a) producing or trading non-financial goods;

(b) providing services that are not financial services.

The Fund does not do any of the activities described in subsection 880-130(1) as it does not produce or trade non-financial goods and does not provide non-financial services.

The Fund's principal activity is to affect the exchange value of the currency of Foreign Country and not any of the above-listed activities. The Fund does not provide services or undertake any other activities other than the holding of equities and debt in listed and non-listed entities.

Law Companion Ruling LCR 2020/3 - The superannuation fund for foreign residents withholding tax exemption and sovereign immunity (LCR 2020/3) outlines examples of public non-financial entities at paragraph 76 as follows:

• airline corporations

• postal authorities

• state water corporations

• port authorities

• hospitals

• schools

• colleges

• state electricity corporations, and

• state mining corporation

The Fund is not any of the abovementioned entities.

Therefore, the Fund is not a public non-financial entity.

The Fund is not a public financial entity

Subsection 880-130(2) defines the term public financial entity:

An entity is a public financial entity if any of the following requirements are satisfied:

(a) it trades in financial assets and liabilities;

(b) it operates commercially in the financial markets;

(i) financial intermediary services, including deposit-taking and insurance services;

(ii) financial auxiliary services, including brokerage, foreign exchange and investment management services;

(iii) capital financial institution services, including financial services in relation to assets or liabilities that are not available on open financial markets.

Subparagraph 880-125(d)(ii) states that public financial entities that only carry on central banking activities are not excluded from being a covered sovereign entity.

Paragraph 4.26 of the Explanatory Memorandum to the Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 ('the EM'), states that the definition of public financial entity is based on concepts in the Australian Bureau of Statistics manual ABS - Australian System of Government Finance Statistics: Concepts, Sources And Methods - 5514.0 of 2015 (ABS Manual).

The ABS manual provides an explanation of 'financial intermediaries' as:

Financial intermediaries - institutional units which incur liabilities on their own account for the purpose of acquiring financial assets by engaging in financial transactions on the market. ... The financial intermediation process channels funds between third parties with a surplus of funds and those with a demand for funds. A financial intermediary not only acts as an agent for these other institutional units, but places itself at risk by acquiring financial assets and incurring liabilities on its own account. Financial intermediation is limited to acquiring assets and incurring liabilities with the general public or specified and relatively large groups thereof. Where the activity is limited to small groups, no intermediation takes place. Financial intermediaries include deposit-taking corporations, insurance corporations, and pension funds.

LCR 2020/3 provides common examples of public financial entities at paragraph 79, which include:

• banks

• deposit taking corporations

• captive financial institutions

• pension/superannuation funds

• insurance corporations

• entities in the business of investment management

• entities in the business of share trading, and

• entities in the business of money lending.

The Fund's principal activities include deposit taking and issuing bills and notes.

All of the Fund's activities are undertaken as part of the Central Bank's functions as a bank, which is a common example of a public financial entity.

The Fund's principal activities are considered financial intermediary services within the definition provided in the ABS Manual and it is therefore considered a public financial entity within subsection 880-130(2).

However, a public financial entity under subsection 880-130(2) is excluded from subparagraph 880-125(d)(ii) where it only carries on central banking activities.

LCR 2020/3 provides at paragraph 81:

81. Based on principles drawn from Government Finance Statistics Manual 2014 and Australian System of Government Finance Statistics: Concepts, Sources and Methods, 2015[46], the following are considered 'central banking activities':

• monetary policy development

• issuing national currency

• acting as custodian of international reserves, and

• providing banking services to government.

82. The Reserve Bank of Australia is Australia's central bank. The activities of the Reserve Bank of Australia are consistent with those outlined in paragraph 81 of this Ruling and provide a useful reference point in considering whether a public financial entity is undertaking central banking activities.

83. Whether a public financial entity is 'only' carrying on central banking activities is a question of fact. It is important to note that a public financial entity may carry on both central banking activities and non-central banking activities (for example, commercial banking). Where this is the case, the public financial entity is not excluded from subparagraph 880-125(d)(ii).

The Fund is utilised by the Central Bank as part of its central banking activities. In addition to holding the official reserves of the Government of the Foreign Country, the Fund is used to maintain the stability and the integrity of the monetary and financial systems of the Foreign Country.

These activities are consistent with those listed as 'central banking activities'.

Therefore, the Fund would be considered a public financial entity that only carries on central banking activities and is be excluded from being a public financial entity under subsection 880-130(2).

Therefore, the Fund satisfies this requirement.

As the Fund has met all of the requirements of section 880-125, it is considered a covered sovereign entity under that section.

The remaining requirements of subsection 880-105(1) are considered below.

The Fund's return is received on a relevant interest in the Test Entities

For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(b), it must be a 'return on' a membership interest, debt interest or non-share equity interest held by the sovereign entity in the Test Entities.

As detailed in paragraph 4.37 of the EM, broadly, the following amounts derived, received or made by a covered sovereign entity may be NANE income (or disregarded when calculating statutory income):

1. dividends - including non-share dividends and dividends that pass through a managed investment trust (MIT)

2. interest - including interest that passes through a MIT

3. fund payments made by a MIT (other than fund payments that are attributable to non-concessional MIT income), and

4. revenue gains made on the disposal of an interest in the test entity - including revenue gains that pass through a MIT.

As set out in Appendix 1 of this Ruling, the returns received by the Fund include various returns on interests in the test entities.

The amounts will therefore be a return on a relevant interest that the Fund holds in the Test Entities, satisfying the requirements of paragraph 880-105(1)(b) of the ITAA 1997.

Therefore, the Fund satisfies this requirement.

The Fund's income is received from Australian resident companies or managed investment trusts

For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(c), it must be received from an entity that is either:

(i) a company that is an Australian resident at the time (the income time) when the amount becomes ordinary or statutory income of the sovereign entity; or

(ii) a *managed investment trust in relation to the income year in which the income time occurs.

Appendix 1 of this Ruing provides the nature of each test entity as at the date of the Ruling application. Each test entity is either an Australian resident company or a managed investment trust at the relevant time.

Therefore, the Fund satisfies this requirement.

The Fund's sovereign entity group satisfies the portfolio interest test

For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(d), the sovereign entity and the sovereign entity group to which it belongs must satisfy the portfolio interest test in relation to the Test Entities at both the income time and throughout any 12 month period that began no earlier than 24 months before that time and ended no later than that time.

The portfolio interest test is outlined in subsection 880-105(4), which states:

A *sovereign entity group satisfies the portfolio interest test in this subsection in relation to the test entity at a time if, at that time, the sum of the *total participation interests that each *member of the group 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 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.

Section 880-20 provides the definition of sovereign entity group. Broadly, sovereign entities of the same foreign government will be members of the same sovereign entity group and sovereign entities of the same part of a foreign government will be members of the same sovereign entity group.

The Fund is part of the sovereign entity group of the Government of the Foreign Country. To the best of the Fund's knowledge, at the relevant times (as required by paragraph 880-105(1)(d)), the Fund, and its sovereign entity group collectively, holds less than 10% of the total participation interests in each of the Test Entities. In addition, the Fund and its sovereign entity group collectively, would hold less than 10% of the total participation interests in the Test Entities in the circumstances detailed in paragraph 880-105(4)(b).

Therefore, the Fund satisfies this requirement.

The Fund's sovereign entity group does not have influence of a kind described in subsection 880-105(6) in relation to the Test Entities at the income time

For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(e), at the income time the sovereign entity group to which the sovereign entity belongs must not have influence over the test entity of a kind described in subsection 880-105(6).

Subsection 880-105(6) states:

A *sovereign entity group 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) a *member of the group:

(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 a member of the group (whether those directions, instructions or wishes are expressed directly or indirectly, or through the member 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 880-105(6)(a), assesses whether the sovereign entity group 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 sovereign entity group 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 sovereign entity group, 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 880-105(6)(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 sovereign entity group.

In relation to sub-test 1, the Fund's interests in the Test Entities do not provide it with an entitlement to either directly or indirectly determine the identity of any person who make decisions that comprise the control and direction of the Test Entities' operations. Furthermore, to the best of the Fund's knowledge, the Fund's interests, when combined with the other interests held within its sovereign entity group, do not provide an entitlement to either directly or indirectly determine the identity of any person who make decisions that comprise the control and direction of the Test Entities' operations.

In relation to sub-test 2, no person involved in the control and direction of the Test Entities' operations is accustomed or obliged to act in accordance with the directions, instructions or wishes of the Fund or to the best of the Fund's knowledge, members of the Fund's sovereign entity group.

Therefore, the Fund's sovereign entity group does not have influence of a kind described in subsection 880-105(6) and will, therefore, satisfy the requirements of paragraph 880-105(1)(e).

Conclusion

As all of the requirements listed in subsection 880-105(1) have been satisfied, section 880-105 will apply to the effect that amounts of ordinary and statutory income derived by the Fund from its interests held in the Test Entities are not assessable and not exempt income.

Question 2

To the extent that ordinary and statutory income derived by the Fund from its Australian Investments listed in Appendix 2 of this Ruling (the Stapled Securities) satisfies subparagraph 880-105(1)(c)(i) and subparagraph 880-105(1)(c)(ii), is the ordinary or statutory income derived from the Stapled Securities not assessable and not exempt income under section 880-105?

Detailed Reasoning

The Fund is a covered sovereign entity

The Fund is a covered sovereign entity and satisfies paragraph 880-105(1)(a).

Therefore, the Fund satisfies this requirement.

The Fund's return is received on a relevant interest in the test entities

As set out in Appendix 2 of this Ruling, the returns received by the Fund from the Stapled Securities include fund payments from membership interests in entities forming the Stapled Securities.

The amounts will therefore be a return on a relevant interest that the Fund holds in the Stapled Securities, satisfying the requirements of paragraph 880-105(1)(b).

Therefore, the Fund satisfies this requirement.

The Fund's income is received from Australian resident companies or managed investment trusts

The Fund will satisfy this requirement to the extent that the entity within the Stapled Security which pays the Fund the income is an Australian resident company at the income time or is a managed investment trust.

The Fund's sovereign entity group satisfies the portfolio interest test

To the best of the Fund's knowledge, at the relevant times (as required by paragraph 880-105(1)(d)), the Fund, and its sovereign entity group collectively, holds less than 10% of the total participation interests in each of the Stapled Securities. In addition, the Fund and its sovereign entity group collectively, would hold less than 10% of the total participation interests in the Stapled Securities in the circumstances detailed in paragraph 880-105(4)(b).

Therefore, the Fund satisfies this requirement.

The Fund's sovereign entity group does not have influence of a kind described in subsection 880-105(6) in relation to the Stapled Securities at the income time

In relation to sub-test 1, the Fund's interests in the Stapled Securities do not provide it with an entitlement to either directly or indirectly determine the identity of any person who make decisions that comprise the control and direction of the Stapled Securities' operations. Furthermore, to the best of the Fund's knowledge, the Fund's interests, when combined with the other interests held within its sovereign entity group, do not provide an entitlement to either directly or indirectly determine the identity of any person who make decisions that comprise the control and direction of the Stapled Securities' operations.

In relation to sub-test 2, no person involved in the control and direction of the Stapled Securities' operations is accustomed or obliged to act in accordance with the directions, instructions or wishes of the Fund or to the best of the Fund's knowledge, members of the Fund's sovereign entity group.

Therefore, the Fund satisfies this requirement.

Conclusion

As all of the requirements listed in subsection 880-105(1) have been satisfied, section 880-105 will apply to the effect that amounts of ordinary and statutory income derived by the Fund from its interests held in the Stapled Securities are not assessable and not exempt income, to the extent that the income satisfies subparagraph 880-105(1)(c)(i) and subparagraph 880-105(1)(c)(ii).

Question 3

To the extent that the answer to Question 1 and Question 2 of this Ruling is yes, is any capital gain made by the Fund, in respect of its Australian investments listed in Appendix 1 and Appendix 2 of this Ruling, disregarded under section 880-115?

Detailed Reasoning

Section 880-115 provides that a sovereign entity disregards a capital gain from a CGT event that happens in relation to a CGT asset if:

(a) the sovereign entity is covered by section 880-125; and

(b) the CGT asset is a membership interest, non-share equity interest or debt interest in another entity; and

(i) the capital gain were an amount of ordinary income or statutory income; and

(ii) the amount mentioned in subparagraph (i) became ordinary income or statutory income of the sovereign entity immediately before the time the CGT event happened; and

(iii) references in those paragraphs to the test entity were references to the other entity mentioned in paragraph (b) of this section.

As established in Question 1, the Fund:

(a) is covered by section 880-125

(b) holds membership and debt interests in the Test Entities, and

(c) satisfies the requirements in paragraphs 880-105(1)(c), (d) and (e) in relation to ordinary or statutory income that it will derive from the Test Entities.

Further, the Fund would satisfy the requirements in paragraphs 880-105(1)(c), (d) and (e) with the assumptions listed in paragraph 880-115(c).

As such, the Fund will be required to disregard any capital gain made in respect of its debt interests in the Test Entities listed in Appendix 1 of this Ruling.

As established in Question 2, the Fund:

(a) is covered by section 880-125

(b) holds membership and debt interests in the Stapled Securities, and

(c) satisfies the requirements in paragraphs 880-105(1)(d) and (e) in relation to ordinary or statutory income that it will derive from the Stapled Securities

(d) will satisfy paragraph 880-105(c) to the extent that the entity within the Stapled Security which pays the Fund the income is an Australian resident company at the income time, or a managed investment trust.

Further, the Fund would satisfy the requirements in paragraphs 880-105(1)(c), (d) and (e) with the assumptions listed in paragraph 880-115(c).

As such, the Fund will be required to disregard any capital gain made in respect of its debt interests in the Stapled Securities listed in Appendix 2 of this Ruling.

Issue 2

Sovereign Immunity (Transitional Provisions) - Division 880 of the Income Tax (Transitional Provisions) Act 1997

Question 4

Detailed Reasoning

Schedule 4 of the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 amended the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 to limit access to tax concessions for foreign investors by codifying and limiting the scope of the sovereign immunity tax exemption.

Section 880-1 of the IT(TP)A 1997 provides that the amendments to codify and limit the scope of the sovereign immunity tax exemption apply to the 20XX-XX income year and later income years. However, transitional rules may apply to income derived from investments of a sovereign entity held at the announcement date of the amendments (27 March 20XX), subject to the satisfaction of certain requirements.

Section 880-5 of the IT(TP)A 1997 provides transitional relief for amounts of ordinary and statutory income derived by a sovereign entity where the following requirements are met:

An amount of ordinary income or statutory income of a sovereign entity for an income year is not assessable income and is not exempt income if:

(a) the amount is a return on an investment asset under a scheme; and

(b) the sovereign entity acquired the investment asset on or before 27 March 20XX under the scheme; and

(d) before 1 July 20XX, the Commissioner gave the entity a private ruling confirming that income from the investment asset was not subject to income tax, or withholding tax, because of the doctrine of sovereign immunity; and

(e) the private ruling applied during at least part of the period:

(i) starting on 27 March 20XX; and

(ii) ending before 1 July 20XX;

regardless of whether the private ruling started to apply before 27 March 20XX, or ceased to apply before 1 July 20XX; and

(f) the scheme carried out is not materially different to the scheme specified in the private ruling; and

(g) the income year is:

(i) unless subparagraph (ii) applies--the 20XX-XX income year or an earlier income year; or

(ii) if the last income year to which the private ruling relates is a later income year than the 20XX-XX income year--that later income year, or an earlier income year.

These requirements are considered below.

An amount of ordinary or statutory income

Section 880-5 of the IT(TP)A 1997 requires the income be ordinary or statutory income.

The Fund will receive ordinary and/or statutory income as a return on its Australian investments listed in Appendix 3 of this Ruling.

Therefore, this requirement is satisfied.

A return on an investment under a scheme

Paragraph 880-5(a) of the IT(TP)A 1997 provides the requirement that:

(a) the amount is a return on an investment asset under a scheme

The Fund will receive amounts that are a return on an investment asset it holds under a scheme.

Therefore, this requirement is satisfied.

Investment asset acquired on or before 27 March 20XX under the scheme

Paragraph 880-5(b) of the IT(TP)A 1997 provides the requirement that:

(b) the sovereign entity acquired the investment asset on or before 27 March 20XX under the scheme; and

The Fund acquired the investment assets listed in Appendix 3 of this Ruling on or before 27 March 20XX.

Therefore, this requirement is satisfied.

The entity applied for a private ruling on or before 27 March 20XX relating to the scheme

Paragraph 880-5(c) of the IT(TP)A 1997 provides the requirement that:

The Fund applied for a private binding ruling relating to Sovereign Immunity on or before 27 March 20XX.

Therefore, this requirement is satisfied.

The Commissioner gave a private ruling before 1 July 20XX

Paragraph 880-5(d) of the IT(TP)A 1997 provides the requirement that:

The Commissioner gave the Fund a private ruling before 1 July 20XX. The private ruling confirms that because of the doctrine of sovereign immunity, the Fund is exempt from withholding tax.

Therefore, this requirement is satisfied.

The private ruling applied to the relevant period

Paragraph 880-5(e) of the IT(TP)A 1997 provides the requirement that:

(e) the private ruling applied during at least part of the period:

(i) starting on 27 March 20XX; and

(ii) ending before 1 July 20XX;

regardless of whether the private ruling started to apply before 27 March 20XX, or ceased to apply before 1 July 20XX;

The private ruling applied for at least part of the period starting on 27 March 20XX and ending before 1 July 20XX.

Therefore, this requirement is satisfied.

The scheme carried out is not materially different

Paragraph 880-5(f) of the IT(TP)A 1997 provides the requirement that:

(f) the scheme carried out is not materially different to the scheme specified in the private ruling;

The Commissioner has determined form the facts and circumstances of this private ruling and those of the previous private ruling that the scheme is not materially different.

Therefore, this requirement is satisfied.

The income year is a relevant income year

Paragraph 880-5(g) of the IT(TP)A 1997 provides the requirement that:

(g) the income year is:

(i) unless subparagraph (ii) applies--the 20XX-XX income year or an earlier income year; or

(ii) if the last income year to which the private ruling relates is a later income year than the 20XX-XX income year--that later income year, or an earlier income year.

The period for this Private Ruling is for the 20XX-XX income year or earlier.

Therefore, this requirement is satisfied.

Conclusion

All the requirements in section 880-5 of the IT(TP)A 1997 are satisfied. Therefore, the ordinary and statutory income derived by the Fund from its Australian investments listed in Appendix 3 of this Ruling is not assessable and not exempt income.

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