Edited version of private advice

Authorisation Number: 1052148771664

Date of advice: 27 July 2023

Ruling

Subject: Foreign superannuation fund - withholding tax exemption

Question 1

Are the Pension Plans, investing through the Fund, excluded from liability to withholding tax on interest, dividend and non-share dividend income derived in respect of assets acquired on or before 27 March 2018 under paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

Question 2

Are the Pension Plans, investing through the Fund, excluded from liability to withholding tax on interest, dividend and non-share dividend income derived in respect of assets acquired after 27 March 2018 under paragraph 128B(3)(jb) of the ITAA 1936?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

1.       The Fund was created on a date under a Trust Agreement.

2.       The assets of the Fund are held by the Trustee.

3.       As per the Trust Agreement, the 'X Committee' is the entity which has the responsibility for administering each Plan and shall be deemed for purposes of the relevant retirement law of Country A to be the Plan administrator and the named fiduciary for Plan administration.

4.       Each participating Pension Plan has an undivided interest in the Fund. As per the Trust Agreement, the

Trustee shall hold the Fund as a commingled fund or commingled funds in which each separate Pension Plan shall be deemed to have a proportionate undivided interest in the fund or funds in which it participates.

5.       As per the Trust Agreement, contributions shall be designated by the X Committee as allocable, and distributions shall be designated by the X Committee as chargeable, to a particular Plan and shall be so allocated or charged.

6.       As per the Trust Agreement, the Trustee shall make distributions from the Fund to such persons, in such amounts, at such times and in such manner as the X Committee or its designee shall from time to time direct pursuant to the service description furnished by the Trustee to the X Committee from time to time.

7.       As per the Trust Agreement, the Trust Fund shall consist of one or more Separate Accounts and, with the

Trustee's written consent, one or more Trustee Investment Accounts. All Separate Accounts and any Trustee Investment Accounts shall be established by the Trustee at the direction of the relevant Funds Committee.

8.       As per the Trust Agreement, the Trustee shall maintain accounts of all investments, receipts and disbursements, including contributions, distributions, purchases, sales and other transactions of the Fund.

9.       As per the Trust Agreement, the Trustee may assume that each Plan and the Fund is qualified under the relevant tax law of Country A.

10.    As per the Trust Agreement, neither Company A, the X Committee nor the relevant Funds Committee shall direct the Trustee to cause any part of the Fund to be diverted to any purpose other than the exclusive benefit of the Participants and Beneficiaries or, except as otherwise permitted under the affected Plan and under the relevant retirement law of Country A, to be remitted to the Company A or a Subsidiary.

Plan Management

11.    The Pension Plans are governed under the provisions of the relevant retirement law of Country A, as amended.

12.    Responsibility for the Plan's non-financial matters has been delegated to the X Committee and responsibility for the Plan's financial matters has been delegated to the relevant Funds Committee.

13.    The Fund has confirmed that:

a)       the Fund is an indefinitely continuing Fund and a provident, benefit superannuation or retirement Fund,

b)       the Fund was established in a country other than Australia,

c)       the Fund was established and is maintained only to provide benefits for individuals who are not Australian residents,

d)       the central management and control of the Fund is carried on outside Australia by entities none of whom is an Australian resident,

e)       an amount added to the Fund or set aside for the Fund has not been or cannot be deducted under the Income Tax Assessment Act 1997 ('ITAA 1997') or the ITAA 1936,

f)        a tax offset has not been allowed or is not allowable for such an amount, and

g)       the income of the Fund is not non-assessable non-exempt income of the fund because of either:

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

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

Pension Plans

14.    The private ruling applies to the Pension Plans which are all non-contributory defined benefit pension plans.

15.    Whilst eligibility to participate in each of the Pension Plans is subject to each Pension Plan's own terms, their members are generally all employees of Company A or its subsidiaries.

16.    Substantially all of the Pension Plan investments are held in the Fund, which was established for the investment of assets of the Pension Plans.

17.    At the time of the ruling application, there are a number of participants in the Fund across the Pension Plans.

18.    All Pension Plans were designed and are currently being operated in compliance with the applicable requirements of the the relevant tax law of Country A, and therefore, the Pension Plans and the Fund are tax-exempt in Country A.

Benefits (retirement, death, disability)

19.    Each of the Pension Plans' actuaries provides actuarial estimates of the minimum and maximum amount of Company A contributions to provide the Plan with sufficient assets to meet the benefits accruing to participants and to meet minimum funding requirements under the relevant retirement law of Country A and the relevant tax law of Country A.

20.    Applicable to all the Pension Plans is a law of Country A that was effective from 1 January 2020 and increases the required minimum distribution age.

21.    Each of the Pension Plans provide retirement benefits and some provide other benefits such as disability retirement benefits and benefits to surviving spouses or nominated beneficiaries of deceased participants.

Benefits in circumstances other than retirement (loans, early withdrawal etc)

22.    The Pension Plans covered by this private ruling do not offer benefits in other circumstances.

Central Management and Control

23.    The central management and control of the Fund is carried out in the Country A by the relevant Fund Committee.

24.    The relevant Funds Committee is a committee consisting of several members from the Company A's management.

25.    The relevant Funds Committee has full responsibility, power and authority to do all things necessary in order to ensure the proper operation and management of the financial aspects of the Funds.

26.    All members of the relevant Funds Committee reside outside of Australia.

Wind-up and insolvency

27.    The Trust Agreement allows for termination of the Fund where the Plan loses its qualified status under the relevant tax law of Country A or by the sale or dissolution of the entity responsible for making contributions.

28.    The Trust Agreement does not provide for winding up at a defined point in time.

Tax status

29.    The Fund is a tax-exempt Public Retirement Fund under the relevant tax law of Country A.

Australian Investments

30.    The Fund provided a list of its Australian investments acquired after 27 March 2018 and this list was included in the Ruling.

31.    In respect of the Fund's Australian investments:

a)       the Fund does not hold more than 10% of the total participation interests in each entity in the circumstances detailed in paragraph 128B(3CC)(b) of the ITAA 1936,

b)       the Fund holds no right to appoint a person to a board, committee or similar, either directly or indirectly,

c)       the Fund has not entered into or received any side letters, arrangements or agreements,

d)       the Fund does not hold any veto rights on security holder votes, and

e)       the Fund does not hold any other influence potentially of a kind described in subsection 128B(3CD) of the ITAA 1936.

32.    The Fund does not have a private ruling with respect to sovereign immunity and it is not a sovereign entity.

33.    The Fund is funded by monies that are not public monies and receives income for the benefit of its members rather than the money being for the benefit of the public at large.

34.    The Fund is not a public financial entity or a public non-financial entity.

35.    The Fund derives dividend, interest, and non-share dividend income from its Australian investments.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Section 128D

Income Tax Assessment Act 1997 Section 118-520

Reasons for decision

Question 1

Are the Pension Plans, investing through the Fund, excluded from liability to withholding tax on its interest, dividend and non-share dividend income derived in respect of assets acquired on or before 27 March 2018 under paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Summary

Yes, the Pension Plans investing through the Fund are excluded from liability to withholding tax on its interest, dividend and non-share dividend income derived in respect of assets acquired on or before 27 March 2018 under paragraph 128B(3)(jb) of the ITAA 1936.

Detailed reasoning

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.

Subsection 128B(3) of the ITAA 1936 notes that section 128B of the ITAA 1936 will not apply to prescribed categories of income. Relevantly, paragraph 128B(3)(jb) provides an exclusion from withholding tax for interest, dividends and non-share dividends derived by a superannuation fund for foreign residents (subject to the satisfaction of certain conditions).

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

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

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

The Fund is a non-resident

The Fund, and each of the Pension Plans, is not a resident of Australia.

Therefore, the Fund and the Pension Plans satisfy this requirement.

The Fund is a superannuation fund for foreign residents

Superannuation fund for foreign residents is a defined term in the ITAA 1936. Subsection 6(1) of the ITAA 1936 states:

superannuation fund for foreign residents has the meaning given by subsection 995- 1(1) of the Income Tax Assessment Act 1997.

Subsection 995-1(1) of the ITAA 1997 sets out the following:

superannuation fund for foreign residentshas the meaning given by section 118-520.

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

118-520 Meaning of superannuation fund for foreign residents

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

(a)  at that time, it is:

(i)   an indefinitely continuing fund; and

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

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

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

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

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

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

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

Consequently, for the Pension Plans to be considered a superannuation fund for foreign residents for the purposes of paragraph 128B(3)(jb) of the ITAA 1936, it must be established that:

•         the Pension Plans are indefinitely continuing funds

•         the Pension Plans are provident, benefit, superannuation or retirement funds

•         the Pension Plans were established in a foreign country

•         the Pension Plans were established and maintained only to provide benefits for individuals who are not Australian residents

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

•         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 offsets have been allowed or would be allowable for an amount paid to the Fund or set aside for the Fund.

An indefinitely continuing fund

The term 'indefinitely continuing fund' is not defined in either the ITAA 1997 or the ITAA 1936. Therefore, it should be given its ordinary meaning subject to the context in which it appears and having regard to any relevant case law authorities.

The Australian Oxford Dictionary, 2004, Oxford University Press, Melbourne defines the term 'fund' as 1 a permanent stock of something ready to be drawn upon... 2 a stock of money, especially one set apart for a purpose.

In Scott v. FC of T (No 2) (1966) 14 ATD 333; (1966) 10 AITR 290 (Scott), Windeyer J expressed the view that 'fund' in the context of 'superannuation fund' ordinarily meant 'money (or investments) set aside and invested, the surplus income therefrom being capitalised'. Windeyer J's views in Scott were cited with approval by Hill J in Walstern Pty Ltd v. Commissioner of Taxation (2003) 138 FCR 1; 2003 ATC 5076; (2003) 54 ATR 423 who stated that 'for present purposes, the point is the need for "money" or "other property" to constitute a fund'.

The general view is that an indefinitely continuing fund does not have to continue forever, but rather that the governing rules should not fix an express termination date.

The Pension Plans were created in Country A to provide retirement benefits to various employees.

The 'money or property set aside and invested' are contributions made by employers of Pension Plan participants and income from investments using those contributions from employers of Pension Plan participants.

The rules of the Fund and Pension Plans do not provide for winding up at a defined point in time. There is no indication that there is an intention for the Fund or Pension Plans to end at a definite point in time.

The Fund has provided an attestation that confirms that the Fund is an indefinitely continuing fund.

Therefore, the Pension Plans and the Fund satisfy this requirement.

A provident, benefit, superannuation or retirement fund

The phrase 'a provident, benefit, superannuation or retirement fund' under paragraph 118-520(1)(a)(ii) is not defined in either the ITAA 1997 or the ITAA 1936. However, the phrase has been subject to judicial consideration.

In Scott, the High Court examined the terms 'superannuation fund' and 'fund'. Justice Windeyer stated at ATD 351; AITR 312; ALJR 278 that:

... I have come to the conclusion that there is no essential single attribute of a superannuation fund established for the benefit of employees except that it must be a fund bona fide devoted as its sole purpose to providing for employees who are participants money benefits (or benefits having a monetary value) upon their reaching a prescribed age. In this connexion "fund", I take it, ordinarily means money (or investments) set aside and invested, the surplus income there from being capitalised.

In a later case, Mahoney v. Commissioner of Taxation (Cth) (1967) 41 ALJR 232; (1967); 14 ATD 519; 10 AITR 463 (Mahoney case), the High Court took a similar view as in Scott, Justice Kitto expressed the view at ALJR 232; (1967); ATD 520; AITR 464 that:

All that need be recognised is that just as 'provident' and 'superannuation' both referred to the provision of a particular kind of benefit - in the one case a provision against contemplated contingencies, and in the other case a provision, to arise on an employee's retirement or death or other cessation of employee, of a subvention for him or his estate or persons towards whom he may have stood in some kind of relation commonly giving rise to a legal or moral responsibility - so 'benefit' must have meant a benefit, not a general sense, but characterised by some specific future purpose.

The court found that the expression takes its meaning from past usage and the meaning of the several expressions must be arrived at in light of their ordinary usage. As such, the term 'benefit' requires a purpose narrower than conferring benefits in a completely general sense. The benefit must be characterised by some future purpose. Likewise, a provident fund must not refer to the provision of funds in a general sense but must relate to a provision against contemplated contingencies.

Both of the above-mentioned cases emphasise that the benefits must be provided for a specific purpose and require that there is a connection between the benefit received and the provision by the fund for retirement or death of a member or against 'contemplated contingencies', such as death, disability or serious illness.

The Pension Plans provide defined retirement benefits for members who are employees of the specified companies. The Pension Plans provide retirement benefits to members upon the satisfaction of each Plan's eligibility requirements. The eligibility requirements are generally based upon a member's age and years of service. These benefits are paid upon and following retirement.

The alternate circumstances of access in this case, being death and disability, align to the contemplated contingencies of a provident, benefit, superannuation or retirement fund.

Therefore, the Pension Plans satisfy this requirement.

Established in a foreign country

The Fund and the Pension Plans were established in Country A.

Therefore, the Fund and the Pension Plans satisfy this requirement.

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

The Fund and Pension Plans were established and are maintained only to provide benefits to members who were employees of the specified companies in Country A..

The Fund has provided a statement to confirm that it was established and is maintained only to provide benefits for individuals who are not Australian residents

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 nonresidents, based on the rules and operation of the Pension Plans.

Therefore, the Fund and the Pension Plans satisfy this requirement.

Central management and control is 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 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, paragraphs 10 and 11 of 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 Trust Agreement is the official plan document governing the Fund. The body that centrally manages and controls the Fund (and the Pension Plans) is the relevant Funds Committee that is based in Country A. They have full responsibility, power and authority to do all things necessary in order to ensure the proper operation and management of the financial aspects of the Fund and the Pension Plans. All members of the relevant Funds Committee reside outside of Australia.

Based on the above, it is reasonable to conclude that the central management and control of the Fund and the Pension Plans occurs outside of Australia by entities that are not Australian residents.

Therefore, the Fund and 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

The Fund has neither an Australian Tax File Number nor an Australian Business Number. It is a non-resident for tax purposes and its only connection to Australia is that of investment. Accordingly, an amount paid to the Fund or the Pension Plans or set aside for the Fund or 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 Fund or the Pension Plans or set aside for the Fund or the Pension Plans.

Therefore, the Fund and the Pension Plans will satisfy this requirement.

Conclusion

As all of the above requirements are satisfied, the Fund and its Pension Plans meet the requirements of being a superannuation fund for foreign residents as defined by section 118-520 of the ITAA 1997 for the purposes of subparagraph 128B(3)(jb)(i) of the ITAA 1936.

The income, consisting of interest, dividend or non-share dividend income, is derived by the Fund

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 its Australian investments acquired on or before 27 March 2018, 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

As per the Facts provided, the Fund and the Pension Plans are exempt from taxation on the interest, dividend and non-share dividend paid by Australian companies in Country A in accordance with the taxation laws of Country A.

Therefore, the Pension Plans will satisfy this requirement.

Conclusions

As all the requirements of paragraph 128B(3)(jb) of the ITAA 1936 are satisfied, the Pension Plans will be entitled to an exemption from withholding tax on interest, dividend and non-share dividend income derived in respect of assets acquired on or before 27 March 2018, under paragraph 128B(3)(jb) of the ITAA 1936.

Question 2

Are the Pension Plans, investing through the Fund, excluded from liability to withholding tax on interest, dividend and non-share dividend income derived in respect of assets acquired after 27 March 2018 (as listed in the Ruling) under paragraph 128B(3)(jb) of the ITAA 1936?

Summary

Yes, the Pension Plans. investing through the Fund, are excluded from liability to withholding tax on interest, dividend and non-share dividend income derived in respect of assets acquired after 27 March 2018 (as listed in the Ruling) under paragraph 128B(3)(jb) of the ITAA 1936.

Detailed reasoning

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 from 1 July 2019 onwards. These extra requirements apply only to assets which were acquired after 27 March 2018. For the purposes of Question 2, which only considers the Pension Plan's assets acquired after 27 March 2018, these extra requirements are applicable.

Relevantly:

iv.            The Pension Plans must satisfy the 'portfolio interest test' in relation to the test entity (subsection 128B(3CC)

v.             The Pension Plans must satisfy the 'influence test' (subsection 128B(3CD) in relation to the test entity, and

vi.            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.

It has been established in Question 1 above that the Fund (together with its Pension Plans) has satisfied all of the pre-existing conditions of paragraph 128B(3)(jb) of the ITAA 1936. As such, the below analysis concentrates only on the extra requirements outlined above.

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 bey 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 Pension Plans, the relevant 'test entities' were supplied to the Commissioner and listed in the Relevant Facts and Circumstances of this 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 Fund will have in a test entity is defined in the table in subsection 960190(1) of ITAA 1997 and depends on what type of entity the other entity is.

Item 1 of the table in subsection 960-190(1) and subsection 960-190(2) of the ITAA 1997 provide that a direct participation interest in a company is the 'direct control interest' (within the meaning of section 350 of the ITAA 1936 excluding the operation of subsections 350(6) and (7)) that the first entity holds in the other entity.

Subsection 350(1) of the ITAA 1936 provides that an entity holds a direct control interest in a company at a particular time equal to the percentage of:

(d)   total paid up share capital

(e)   voting rights, or

(f)    rights to distributions of capital or profits that it holds in the company.

Where there are different percentages in each of the above, the direct control interest is the greater or greatest of those percentages. Subsection 350(2) of the ITAA 1936 provides that where an entity holds different percentages of total rights to vote for the purposes of (b) above, the highest of those percentages applies in establishing the direct control interest.

Item 2 of the table in subsection 960-190(1) and subsection 960-190(2) of the ITAA 1997 provide that a direct participation interest in a trust is the 'direct control interest' (within the meaning of section 351 of the ITAA 1936 excluding the operation of subsections 351(3) and (4)) that the first entity holds in the other entity.

Subsection 351(1) of the ITAA 1936 provides that an entity holds a direct control interest in a trust at a particular time equal to the percentage of:

(c) the income of the trust to which the entity is entitled or is entitled to acquire, or

(d) the corpus of the trust to which the entity is entitled or is entitled to acquire.

The Fund has invested in shares and corporate bonds.

In all the Fund's direct Australian investments (as listed) it holds less than 10% total participation interest considering direct participation interests and indirect participation interests, including considerations of treating all equity holders as shareholders and non-share equity as paid up capital.

It does not hold indirect participation interests which will increase its total participation interest.

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 the Ruling. Further, the Pension Plans would hold less than 10% of the total participation interests in each Australian company or MIT listed in the Ruling in the circumstances detailed in paragraph 128B(3CC)(b) of the ITAA 1936.

In these circumstances, the Commissioner is satisfied that the total participation interest the Fund holds in the test entities:

•         is less than 10% pursuant to paragraph 128B(3CC)(a) of the ITAA 1936 at all relevant times; and

•         would be less than 10% in the circumstances detailed in paragraph 128B(3CC)(b) of the ITAA 1936 at all relevant times.

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

The Pension Plans do not have influence of a kind described in subsection 128B(3CD) of the ITAA 1936 in relation to the test entity at the time the income was derived

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.

The Fund does not have the ability to appoint a person such as a director or a member of an advisory or investment committee either on its own or by pooling its interests with other investors. The Fund does not have the ability to veto relevant decisions.

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.

The Fund does not have any side letters or similar arrangements which provide the Fund with influence over the direction of the test entity.

Relevantly, in respect of the investments listed in the Relevant Facts and Circumstances of this Ruling:

•         Neither the Fund, the Pension Plans, nor any related party, are involved in the day to day management of the business of any of the Australian companies or trusts.

•         Neither the Fund, Pension Plans, nor any related party, have the right to appoint a director to the Board of Directors of the Australian company, Australian debt issuer or equivalent role in a trust.

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

•         Neither the Fund, Pension Plans, nor any related party, have the ability to direct or influence the operation of the Australian companies or trusts outside of the ordinary rights conferred by the equity interest held.

•         The Fund, Pension Plans have not entered into or received any side letters, arrangements or agreements.

•         The Fund only holds rights to vote in proportion to its equity interest in each of the Australian companies or trusts.

Accordingly, the Pension Plans do not have influence of a kind described in subsection 128B(3CD) of the ITAA 1936 in respect of its Australian investments. The Pension Plans do not have capacity to influence (either directly or indirectly) the day-to-day management of the operations of their investments.

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

The income received by the Fund is not non-assessable and non-exempt income of the Fund because of Subdivision 880-C of the ITAA 1997 or Division 880 of the Income Tax (Transitional Provisions) Act 1997

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 paragraph 119.

Conclusion

As the Pension Plans have met both the pre-existing and extra requirements under paragraph 128B(3)(jb) of the ITAA 1936 in relation to assets it acquired after 27 March 2018 (as listed in the ruling), they will be excluded from withholding tax in relation to interest, dividend and non-share dividend income received in respect of those assets.