Edited version of private advice

Authorisation Number: 1052287035683

Date of advice: 2 September 2024

Ruling

Subject: Superannuation fund for foreign residents - withholding tax exemption

Question

Is the Fund excluded from liability to withholding tax on its dividend and interest income derived from Australian Investments in respect of assets acquired after 27 March 20XX under paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 ( ITAA 1936)?

Answer

Yes.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

1. The Fund currently invests in Australia for the benefit of its registered plan members.
2. The Fund will continue to identify potential Australian projects that may be suitable for investment.

Background

3. The Fund was established under a foreign superannuation legislation and is administered by a foreign City Council.
4. The regulations of the Fund are in line with those set out in the applicable pension scheme regulations.

Plan Type

5. The Fund is a defined benefit plan, where both the employer and employee make contributions. Employee benefits are accrued based on a percentage of pensionable pay on a career average basis. As a defined benefit plan, the benefits payable on death, ill-health, termination of service and retirement are specified in the plan regulations.
6. The Fund has the following salient features:
   1. Inclusion is restricted to the type of employee to which the Fund relates (i.e. a person must be an employee of one of the employers set out in the Regulations) and is not open to the general public;
   2. Benefits accruing under the Fund are traceable (i.e. the amount contributed by an employee can be determined or the benefits accrued to an employee can be calculated); and
   3. An employee's contribution to the Fund, or accrued benefits under the Fund, are portable to another eligible pension plan.

Plan Management

7. A foreign City Council is the administering authority of the Fund and the Director for the City Council is the proper officer responsible for the Fund.
8. The City Council's responsibility is delegated to the Fund Committee which is the main decision-making body for the Fund. The Fund Committee is comprised of elected members of City Council and meets quarterly to address matters within its terms of reference. The terms of reference set out the various functions and responsibilities relating to City Council's role as administering authority for the Fund.

Purpose

9. The Fund exists to provide scheme benefits.
10. The purpose of the Fund is to receive monies, invest monies and pay out monies in respect of scheme benefits, transfer values, costs, charges and expenses.

Membership:

11. Membership of the Fund includes employees, pensioners and civilian employees of particular employment as is set out within the Fund documents.
12. A member can be either an active member or a deferred member of the Fund, depending on whether the member is currently an employee of one of the employers contributing to the Fund. A person can also be a member when they meet specific criteria, such as a survivor member.
13. Members are eligible to receive specific benefits from the Fund.

Contributions

14. Contributions are made at the contribution rate (based on the member's pensionable pay) from that member's pensionable pay in each employment in which the member is an active member.

Benefits

General Benefits

15. If an employee attains normal pensionable age and is not an employee of a specific employer at the time, the employee is entitled to immediate payment of a retirement pension without reduction.
16. A member who has reached normal pension age may elect to defer payment of the retirement pension up to the date the member reaches XX.
17. A member can access their pension on retirement as a lump sum. The amount of the lump sum is limited to XX% of the member's accrued rights under the Scheme to date.

Ill-health benefits

18. If an active member who has X or more years of qualifying service has their employment terminated by a Scheme employer, on grounds of ill-health or mental infirmity before the member reaches the normal pension age, they are entitled to and must take early pension where they are permanently incapable of efficiently discharging the duties of the employment they were engaged in.

Death benefits

19. If an active member dies before attaining age XX may be eligible for a death benefit.
20. If the deceased active member dies leaving a surviving partner and/or eligible children, they are entitled to a pension that shall be paid on the day following the member's death.

Portability of Benefits:

21. Multiple options exist when an employee leaves the included employers to transfer their benefits, including obtaining a transfer value to be transferred and transferring their pensionable service to another pension plan.

Central Management and Control

22. The central management and control of the Fund is carried out in a foreign country.

Wind up and Insolvency

23. The Fund is not subject to any Act relating to the insolvency or winding-up.

Tax Status:

24. The Fund is a registered superannuation in its resident country, and as such is exempt from that countries' income tax on interest received and from capital gains tax on the proceeds of investments sold.
25. Statements from the managers of Fund have been provided with the ruling application indicating that:

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

•         The Fund was established in a country outside Australia;

•         The Fund was established, and maintained and applied, for the sole purpose of providing benefits for persons who are not residents of Australia;

•         The central management and control of the Fund is carried on outside of Australia by persons none of whom is resident in Australia;

•         The Fund is not one for which an amount has been set aside, or to which an amount has been paid, by a taxpayer that is an amount that has been allowed or is allowable as a deduction under any provision of the Income Tax Assessment Act 1997; the interest and dividend income is exempt from income tax in the country in which the Fund is a resident;

•         The income of the Fund is not non-assessable non-exempt income because of Subdivision 880-C of the Income Tax Assessment Act 1997 and;

•         A tax offset has not been allowed or is not allowable for such an amount.

26. Formal certification confirming the Fund is generally exempt of its home country's tax legislation was provided by the tax authority of that country.

Australian Investments:

27. The Fund received income from Australian Investments.
28. The Fund has provided a list of its Australian investments all of which have the following characteristics:

a.    Neither the Fund, nor any related party, has involvement in the day-to-day management of the business of any of the Australian companies or trusts.

b.    Neither the Fund, nor any related party, has the right to appoint a director to the Board of Directors of the Australian Company, Australian debt issuer or equivalent role in a trust.

c.     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 or trusts.

d.    Neither the Fund, nor any related party, has 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.

e.    The Fund only holds rights to vote in proportion to its equity interest in each Australian Company or trust.

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

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

Does IVA apply to this private ruling?

Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement.

If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidancerule for income tax'.

Reasons for decision

Question 1

Summary

The Fund is excluded from liability to withholding tax on its dividend and interest income derived from its Australian Investments in respect of assets acquired after 27 March 20XX under 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 Income Tax Assessment Act 1997 (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 is not a resident of Australia.

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 documents do not provide for winding up at a defined point in time. Additionally, the Fund has provided a letter stating that they are an indefinitely continuing fund.

Therefore, 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's sole purpose is to provide the relevant participant employees money benefits upon their reaching a prescribed age, and/or upon particular contingencies (e.g death, ill-health and retirement).

The Fund rules are consistent with a superannuation fund, and the amounts collected by the Fund are not used for any purpose other than providing benefits to participants, former participants and their beneficiaries.

Therefore, the Fund will satisfy this requirement.

The Fund was established in a foreign country

The Fund was established in a foreign country and therefore 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 superannuation benefits to members who are specific employees of local authorities in the west of ABC.

The Fund has provided a letter stating that it does not provide benefits to 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 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.

The central management and control of the Fund takes place outside of Australia, 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

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 interest, dividend or non-share 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 invests directly into Australia and receives interest, dividend or non-share dividend income directly from its 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 taxation on the interest, dividend and non-share dividend paid by Australian companies in the country in which it resides.

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.

Conclusion

As all the requirements of paragraph 128B(3)(jb) of the ITAA 1936 are satisfied, the Fund 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.

It has been established above that the Fund 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 which only considers the Fund's assets acquired after 27 March 2018.

Subsection 128B(3CA) of the ITAA 1936

Income from investments acquired after 27 March 2018 must satisfy the requirements of subsection 128B(3CA) in order for that income to be exempt from withholding tax under paragraph 128B(3)(jb).

Subsection 128B(3CA) states:

(3CA) Paragraph (3)(jb) applies to income derived by the superannuation fund mentioned in subparagraph (3)(jb)(i) only if:

(a) the superannuation fund satisfies the portfolio interest test in subsection (3CC) in relation to the entity mentioned in subsection (3CB) (the test entity):

(i) at the time the income was derived; 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

(b) the superannuation fund does not, at the time the income was derived, have influence of a kind described in subsection (3CD) in relation to the test entity; and

(c) the income is not non-assessable non-exempt income of the superannuation fund because of:

(i) Subdivision 880-C of the Income Tax Assessment Act 1997; or

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

Relevantly, the requirements in paragraphs 128B(3CA)(a), 128B(3CA)(b) and 128B(3CA)(c) must all be satisfied in order for paragraph 128B(3)(jb) to apply.

Paragraph 128B(3CA)(a)

Paragraph 128B(3CA)(a) requires applying the 'portfolio interest test' in subsection 128B(3CC) in relation to the relevant 'test entity' mentioned in subsection 128B(3CB) at particular times.

Subsection 128B(3CB) states:

(3CB) For the purposes of subsection (3CA), the test entity is:

(a) unless paragraph (b) applies-the entity that paid the interest, dividends or non-share dividends as mentioned in subparagraph (3)(jb)(ii); or

(b) if subsection 128A(3) applies in relation to a resident trust estate (within the meaning of Division 6)-the trust estate.

In the case of the Fund, the relevant 'test entities' are the entities listed in the 'Australian Investments' section of the relevant facts and circumstances of the Ruling.

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 participation of any of the Australian investment entities.

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 listed in the relevant facts of this Ruling.

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.

As per the facts, 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 the other investors. The Fund does not have the ability to veto or otherwise exert influence over the direction of the investment companies.

Relevantly, in respect of the investments listed in the relevant facts and circumstances of this Ruling:

• Neither the Fund, nor any related party, is involved in the day to day management of the business of any of the Australian companies or trusts.
• Neither the Fund, nor any related party, has 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, nor any related party, holds the right to representation on any investor representative or advisory committee (or similar) of the Australian companies or trusts.
• Neither the Fund, nor any related party, has 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 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 or trusts.

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 satisfy this condition in respect of its current investments in Australia.

Conclusion on subsection 128B(3CA)

All the requirements of subsection 128B(3CA) are satisfied in respect of any income that will be derived by the Fund.

Conclusion

As the Fund has 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, it will be excluded from withholding tax in relation to interest, dividend and non-share dividend income received in respect of those assets.