Edited version of private advice

Authorisation Number: 1051992052877

Date of advice: 22 June 2022

Ruling

Subject: Foreign superannuation fund

Question 1

Is the Fund excluded from liability to withholding tax on interest, dividend and non-share dividend income derived from its Australian investments as listed in Appendices 1 and 2 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 periods:

1 January 20xx to 31 December 20xx

1 January 20xx to 31 December 20xx

The scheme commences on:

1 January 20xx

Relevant facts and circumstances

The Fund

1.    The Fund was established in xx country under The Trust Agreement dated xx xxxxx 20xx.

2.    The Fund is an agreement between the Company, the Named Fiduciary and the Trustee.

3.    The Named Fiduciary, has the authority to control and manage the operations of the Plans, including the power to manage and control the assets of the Fund.

4.    The Named Fiduciary appoints the Trustee as trustee for the Funds Property. The Company may transfer Fund Property to the Trustee's care.

5.    The Fund is a defined benefit plan and the benefits are based on a formula.

6.    The Fund provides pension benefits for eligible employee of the Company, who were hired before xx xxxxx 20xx. Effective xx xxxxx 20xx, the Fund was closed to new entrants.

7.    The company and other participating Business Units are based and registered in the xx Country.

8.    The Fund has provided a certificate of residence from Foreign Tax Authority that the Trustee of the Fund is a resident for the xx Country tax purposes.

9.    The assets of the Trust are held for the exclusive purpose of providing benefits to the participants of the Plans and their beneficiaries.

Other Facts

10.  Other relevant facts:

•         The Fund is an indefinitely continuing fund and a provident, benefit, superannuation or retirement fund.

•         The Fund was established in a country other than Australia.

•         The Fund was established and is maintained only to provide benefits for individuals who are not Australian resident.

•         The central management and control of the Fund is carried on outside Australia by entities none of whom is an Australian resident.

•         No amount paid to the Fund can be deducted under the Income Tax Assessment Act 1997 (ITAA 1997) or Income Tax Assessment Act 1936.

•         No tax offsets would be allowable for an amount paid to the Fund.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Section 118-520

Reasons for decision

Question 1

Is the Fund excluded from liability to withholding tax on interest, dividend and non-share dividend income derived from its Australian investments as listed in Appendices 1 and 2 of this Ruling, in accordance with paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Summary

The Fund is excluded from liability to withholding tax on interest, dividend and non-share dividend income derived from its Australian investments as listed in Appendices 1 and 2 of this Ruling, in accordance with paragraph 128B(3)(jb) of the ITAA 1936.

Detailed reasoning

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).

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
• consists of interest, or consists of dividends or non-share dividends paid by a company that is a resident; and
• exempt from income tax in the country in which the superannuation fund for foreign residents arise.

The Fund is a non-resident

The Fund is a resident of xx Country as confirmed by the Foreign Tax Authority.

Superannuation fund for foreign residents

Section 118-520 of the ITAA 1997 provides:

(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.

1.    An indefinitely continuing fund

The Fund was established in the xx Country under the Trust Agreement dated xx xxxxx 20xx for the exclusive purpose of providing benefits to the participants of the Plans and their beneficiaries.

The Trust Agreement does not provide for a termination date and the Fund has provided an attestation that confirms that the Fund is an indefinitely continuing fund.

Therefore, the Fund satisfies 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 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 purpose of the Fund is to provide retirement pension, death benefits, pension for spouses, contingent annuitants, nominated beneficiaries and children.

Therefore, it can be concluded that the sole purpose of the Fund is to provide retirement benefits or benefits in other allowable contemplated contingencies and, as such, satisfy this requirement.

3.    Established in a foreign country

The Fund was established under the Trust Agreement in the xx Country.

Therefore, the Fund satisfies this requirement.

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

The Fund was established to provide retirement benefits for individuals who are employees of the Company, and other participating Business Units. The Company and other participating Business Units are based and registered in the xx Country.

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 Fund, in this case, has not been established and is not maintained only to provide benefits for non-residents, based on the rules and operation of the Fund.

Therefore, the Fund satisfies this requirement.

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 in respect of the central management and control (CM&C) of a superannuation fund:

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 central management and control of the Fund is carried on outside Australia by the Named Fiduciary of the Fund, which is registered in the xx Country.

Furthermore, the Fund has also advised that its CM&C is carried on outside of Australia by entities none of whom are Australian residents.

Based on the above, it is reasonable to conclude that the CM&C of the Fund occurs in the xx Country by entities that are not Australian residents.

Therefore, the Fund satisfies this requirement.

6.    Subsection 118-520(2)

The Fund has advised that no amount paid to the entity or set aside for the entity has not been or cannot be deducted under ITAA 1936 or ITAA 1997 and a tax offset has not been allowed or is not allowable for such an amount.

Therefore, the Fund satisfies these requirements.

Conclusion on section 118-520 of the ITAA 1997

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

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.

The Fund has provided a list of its Australian Investments which are shares and the income consists of dividends.

Therefore, the Fund will satisfy this requirement.

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

The Fund has provided a certificate of residence from Foreign Tax Authority that the Trustee of the Fund is a resident for the xx Country tax purposes. The letter from Foreign Tax Authority also states that the Fund is generally exempt of xx Country tax under section xx of the Foreign Company legislation.

Therefore, the Fund satisfies this requirement.

1.    Otherwise non-assessable non-exempt

The Fund has advised that income received by the Fund 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.

Therefore, the Fund satisfies this requirement.

Conclusion

Having regard to the requirements of paragraph 128B(3)(jb) of the ITAA 1936, the Fund is excluded from withholding tax in relation to interest, dividend and non-share dividend income derived from its investments listed in Appendices 1 and 2 of this Ruling.