Edited version of private advice

Authorisation Number: 1052262964752

Date of advice: 19 June 2024

Ruling

Subject: Withholding tax - foreign superannuation fund for foreign residents

Question

Is the Fund excluded from liability to withholding tax on its dividend income from its investments, as described in the relevant facts as circumstances, 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:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

1.    The Fund was created by a state government of a foreign country for the sole purpose of investing pension assets for the state government employee pension plans (the 'Pension Plans'):

a.    Pension Plan A,

b.    Pension Plan B,

c.     Pension Plan C, and

d.    Pension Plan D.

2.    The Fund was established in 19XX under a federal Act (the 'Act') with the authority to manage, invest and reinvest the funds and assets of the Pension Plans.

3.    Pension Plan D participates in Plan A and does not have its own rules and benefits.

4.    The Pension Plans the Fund invests on behalf of are all Defined Benefit plans.

5.    The Act established Board of Trustees or retirement board of any pension fund or system authorised under the Act to participate in any comingled investment fund or funds established and managed by the Fund may invest in such comingled investment fund or funds upon written notice to the Fund.

6.    The Fund is made up of staff, the executive team and a Board of Trustees (the 'Board') comprising of XX trustees.

7.    An executive committee, made up of four elected Members of the Board, have authority to conduct all business of the Fund in between regular meetings.

8.    The Fund's central management and control is carried on outside of Australia by entities who are not Australian residents.

Investment Management Agreement ('IM Agreement')

9.    In 20XX, the Fund entered into the IM Agreement with the Investment Manager.

10.  Under the IM Agreement, the Fund has assigned responsibility to the Investment Manager to invest funds held in account with the Custodian.

11.  The Fund is the legal and beneficial owner of its Australian investments listed at paragraph xx of the relevant facts and circumstances.

Pension Plans

12.  Each of the Pension Plans which the Fund invests on behalf of are contributory defined benefit pension plans, each split into two tiers to cover Members who began employment before 1 January 20XX or after 31 December 20XX.

13.  Benefits under all plans include retirement pension, disability benefits, death benefits and optional repayment of contributions upon termination.

14.  The Pension Plans cover employees that meet the relevant eligibility requirements.

15.  All Members make contributions based on established formulas calculated using the Members time in service, yearly earnings and Tier of membership.

16.  Benefit payments are calculated with established formulas based on factors such as type and length of service, age of Member at retirement, nomination of elected survivors, age and eligibility of survivors, Member disability or death.

Benefits

17.  The benefits provided by each of the pension plans are as follows:

a.    Retirement Pension:

                                          i.    Plan A:

1.    Retirement pensions are paid monthly and calculated based on a Member's final average compensation amount and their credited service.

2.    Members can elect for payment options such as increased payments for Members prior to their eligibility to additional government pensions or reduced payments to provide additional lifetime income to dependants in addition to the survivors benefit.

                                         ii.    Plan B:

1.    Retirement pension is paid monthly and based on the Member's total credited service, Membership date, age and salary.

2.    Members who qualify for the maximum retirement annuity can elect to limit their contributions, only making contributions based on future increases to salary.

                                        iii.    Plan C:

1.    Retirement pension is paid monthly and calculated based on the Member's age, Membership start date, years of service, and salary on their last day of service.

2.    Members may elect to reduce their monthly retirement benefits to provide a higher lifetime income for survivors after death.

b.    Disability Benefits:

                                          i.    Plan A:

1.    Disability benefits are available for non-occupational, occupational and temporary disabilities.

2.    Disability benefits begin to accrue on the latest of the 31st day of absence from work because of disability or the last day the Member received wages.

3.    Disability benefits are calculated as a percentage of the Member's final average compensation depending on the type of disability benefit and the Member's status when they were disabled.

                                         ii.    Plan B:

1.    Permanent disability benefits are available for Members who meet the minimum service years and are found to be totally and permanently disabled and unable to perform their role.

2.    Temporary disability benefits are also available for Members whose Membership started before 1 January 20XX and meet the minimum service years required before the disability.

                                        iii.    Plan C:

1.    Members whose Membership started before 1 January 20XX and are permanently disabled during their service may receive a retirement annuity if they have met the minimum period of service.

c.     Death Benefits:

                                          i.    Plan A:

1.    Death benefits are available to provide eligible survivors with a pension or elected beneficiaries with a lump sum payment of the Member' s contributions and interest.

2.    Death benefits are determined based on Member's status at the date of their death, with survivor's pensions calculated based on the type of relationship the survivor had with the Member.

                                         ii.    Plan B:

1.    Death benefits are available to provide eligible survivors with monthly survivors annuity, or elected beneficiaries with a repayment of the Member's total contributions less any benefits which have been paid out.

2.    Death benefits are determined based the Member status, age, time of service and salary at the time of death, along with the eligibility and type of survivor receiving the benefit.

                                        iii.    Plan C:

1.    Death benefits are available to provide eligible survivors with monthly survivors annuity following the death of a Member who has met the minimum service time requirement.

2.    Death benefits are determined based the Member status, age, time of service and salary at the time of death, along with the eligibility and type of survivor receiving the benefit.

Other information

18.  The Fund is exempt from tax under the relevant sections of the tax legislation in the foreign country which it was established in.

19.  The Pension Plans are qualified pension plans under the relevant sections of the tax legislation in the foreign country which they were established in.

20. The Fund has provided a statement confirming that:
    1. the Fund is an indefinitely continuing fund and a provident, benefit, superannuation, or retirement fund,
    2. the Fund was established in a country other than Australia,
    3. the Fund was established and is maintained only to provide benefits for individuals who are not Australian residents,
    4. the Fund's central management and control is carried on outside of Australia by entities none of whom are Australian residents,
    5. no amount paid to/set aside for the Fund can be deducted under the Income Tax Assessment Act 1997 (ITAA 1997) or ITAA 1936,
    6. no tax offsets would be allowable for an amount paid to the Fund or set aside for the Fund, and
    7. the income of the Scheme is not NANE 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.

Appendix A - The Fund's Australian Investments

21. The Fund has investments in Australian equities. These investments have the following characteristics:

a.    All investments are listed on the Australian Securities Exchange (ASX).

b.    The Fund holds less than 10% of the total equity interests on issue of each Australian company or trust.

c.     The Fund has no involvement in the day to day management of the business of any of the Australian companies or trusts.

d.    The Fund has no rights to appoint any person to any board, committee or similar, either directly or indirectly, of the Australian company or trust.

e.    The Fund has no ability to direct or influence the operation of the Australian company or trust outside of the ordinary rights conferred by the equity interest held.

22. The Fund legally and beneficially owns its Australian Investments.

Relevant legislative provisions

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

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

Income Tax Assessment Act 1997 Section 118-520

Reasons for decision

Question 1

Is the Fund excluded from liability to withholding tax on its dividend income from its investments, as described in the relevant facts as circumstances, 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 its dividend income from its investments, as described in the relevant facts as circumstances, in accordance with paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (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.

Further, from 1 July 2019, the extra requirements in subsection 128B(3CA) of the ITAA 1936 must also be met for an entity to be entitled to receive the exemption under paragraph 128B(3)(jb) of the ITAA 1936. These additional requirements were introduced by the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 and generally apply to income derived from 1 July 2019.

Each of these requirements is considered as set out below.

Income is derived by a non-resident that is a superannuation fund for foreign residents

The Fund is a non-resident

The Fund is not a resident of Australia for tax purposes.

Therefore, the Fund satisfies 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 Fund 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 Fund is an indefinitely continuing fund,
• the Fund is a provident, benefit, superannuation or retirement fund,
• the Fund was established in a foreign country,
• the Fund was established and maintained only to provide benefits for individuals who are not Australian residents,
• the central management and control of the Fund 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.

The Fund is 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 Fund has been in effect since 19XX, and does not provide for winding up at a defined point in time. The Fund has also provided a letter to the Commissioner which states that the Fund is an indefinitely continuing fund.

Therefor the Fund satisfies this requirement.

The Fund is a provident, benefit, superannuation or retirement fund

The phrase 'a provident, benefit, superannuation or retirement fund' under subparagraph 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 Fund is a registered pension plan in a foreign country, established for the purpose of investing funds on behalf of the Pension Plans which provide benefits for public employees. Each Plan provides retirement pension, disability and death benefits for Member's and their survivors and beneficiaries. The Plans within the Fund are all Defined Benefit plans.

Each Plan provides benefits for Members separately calculated per the formulas set out in the relevant facts and circumstances of this ruling. These formulas are based on a number of factors including the Member's highest and average earnings during their service, the years of their pensionable service, their age at retirements and their election of a spouse or beneficiary.

The purpose of the Fund is to provide the following benefits to Members who meet the eligibility criteria for each of Plans:

1. Lifetime Pension,
2. Permanent and Temporary Disability Benefits,
3. Death and Survivor Benefits, and
4. Return of Contributions Upon Termination.

It is thus accepted that the Fund is a 'provident, benefit, superannuation or retirement fund' on the basis that the objective of the Fund is to provide superannuation for retired public employees in the state of the foreign country who meet the eligibility requirements of the Plans.

The Fund will therefore satisfy this requirement.

The Fund was established in a foreign country

The Fund was established in a foreign country.

Therefore, the Fund satisfies this requirement.

The Fund was established and maintained only to provide benefits for individuals who are not Australian residents

The Fund was established and is maintained only to provide benefits to Members who are public employees in the state of the foreign country who meets the eligibility requirements of Pension Plans.

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.

The Fund's 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.

Based on the composition of the Board, it is reasonable to conclude the central management and control of the Fund occurs in a foreign country by entities that are not Australian Residents. Therefore, the Fund satisfies 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 (Subsection 118-520(2) of the ITAA 1997)

Pursuant to subsection 118-520(2) of the ITAA 1997, 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 the Act; or

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

An amount paid to the Fund or set aside for the Fund 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 set aside for the Fund.

Therefore, the Fund will satisfy this requirement.

Conclusion

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 for the purposes of subparagraph 128B(3)(jb)(i) of the ITAA 1936.

The income, consisting of dividend income, is derived by the Fund

Subsection 128B(3CA) of the ITAA 1936, along with paragraph 128B(3)(jb) of the ITAA 1936 requires the superannuation fund for foreign residents to derive the interest, dividends or non-share dividends paid by Australian resident companies.

The Fund is the legal and beneficial owner of its Australian investments and derives the dividend income from those Australian investments. It will, therefore, derive the relevant income for the purposes of subsection 128B(3CA) of the ITAA 1936 and paragraph 128B(3)(jb) of the ITAA 1936.

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

The Fund is exempt from income taxation in the country of its residence.

Therefore, the Fund will satisfy this requirement.

Otherwise non-assessable non-exempt

The 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.

Income derived by Fund would not be otherwise treated as not assessable and not exempt income by virtue of the above provisions. Accordingly, the above exclusion should not apply to exclude the Fund from entitlement to the withholding tax exemption for superannuation funds for foreign residents.

Subsection 128B(3CA) of the ITAA 1936

The Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 introduced extra requirements that must be met for paragraph 128B(3)(jb) of the ITAA 1936 to apply from 1 July 2019 onwards. Generally, these extra requirements apply to income derived from 1 July 2019.

Relevantly:

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

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

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

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

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

The Fund satisfies the 'portfolio interest test'

Subsection 128B(3CC) of the ITAA 1936 states:

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

(a) is less than 10%; and

(b) would be less than 10% if, in working out the direct participation interest (within the meaning of that Act) that any entity holds in a company:

(i) an equity holder were treated as a shareholder; and

(ii) the total amount contributed to the company in respect of non-share equity interests were included in the total paid-up share capital of the company.

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 960-190(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:

(a)  total paid up share capital,

(b)  voting rights, or

(c)   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.

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

As per the facts, the Fund does not hold more than 10% of total equity interests, directly or indirectly, in any of the entities listed in the 'Australian Investments' section. The Fund has no involvement in, rights to, or influence over, the Australian investment companies outside of the ordinary rights conferred by their equity.

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 Fund therefore satisfies the 'portfolio interest test' in respect of its Australian investments.

The Fund does 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 Fund is able to determine the identity of at least one of the persons who, individually or together with others, makes or is reasonably expected to make, decisions comprising the control and direction of the test entity's operations. This includes situations where the Fund is able to act in concert with others to determine the identity of a relevant decision-maker in the test entity.

Sub-test 1 also extends to situations where the Fund, in its own right, holds the ability to approve or veto decisions which go to the control or direction of the test entity.

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

Relevantly, in respect of the Fund's investments (listed in the relevant facts and circumstances ):

• Neither the Fund, nor any related party, is involved in the day to day management of the business of any of the Australian companies.
• Neither the Fund, nor any related party, has the right to appoint a director to the Board of Directors of the Australian companies.
• Neither the Fund, nor any related party, holds the right to representation on any investor representative or advisory committee (or similar) of the Australian companies.
• Neither the Fund, nor any related party, has the ability to direct or influence the operation of the Australian companies outside of the ordinary rights conferred by the equity interest held.
• The Fund has 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.

Accordingly, the Fund does not have influence of a kind described in subsection 128B(3CD) of the ITAA 1936 in respect of its Australian investments. The Fund does 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 Fund does 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 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.

The Fund therefore satisfies this condition in relation to its Australian investments.

Conclusion

The Fund is excluded from withholding tax in relation to dividend income derived from its investments as the Fund has met the requirements under paragraph 128B(3)(jb) of the ITAA 1936.