Edited version of private advice

Authorisation Number: 1052292066114

Date of advice: 22 August 2024

Ruling

Subject: Sovereign immunity

Question 1

Is the ordinary and statutory income derived by Foreign Entity from its Australian investments, not assessable and not exempt income under section 880-105 of the Income Tax Assessment Act 1997 (ITAA 1997) except to the extent the amount is a fund payment attributable to types of non-concessional MIT income listed in subsection 880-105(3)?

Answer

Yes.

Question 2

Will any capital gain arising to Foreign Entity from a CGT event that happens in relation to the equity investment assets and certain debt investments comprised within Fund 1 be disregarded pursuant to section 880-115 of the ITAA 1997?

Answer

Yes.

Question 3

If the answers to Questions One and Two above are yes, does paragraph 128B(3)(n) of the Income Tax Assessment Act 1936 (ITAA 1936) (for interest and dividends) and subsection 840-805(9) of the ITAA 1997 (for fund payments from MITs) apply to exclude Foreign Entity from liability to withholding tax on income where the income from the investments is not assessable income and is not exempt income due to the operation of Division 880 of the ITAA 1997?

Answer

Yes.

Question 4

Will Article 11 of the Double Tax Agreement (DTA) exempt Foreign Entity from liability to tax in Australia on interest income received from debt investments in corporate, securitised, index linked and Government bonds and treasuries from which it will ordinarily derive income in the form of interest when made within the parameters contained in paragraph 21 of the relevant facts and circumstances of this Ruling?

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

The Foreign Entity

1. The Foreign Entity is the central bank of Country X with its head office in Country X.
2. The Foreign Entity is a resident of Country X for Country X tax purposes.
3. The Foreign Entity was established by an act of Country X.
4. The Foreign Entity is a separate legal entity and its issued capital is owned by the Country X Government.
5. The purpose of the Foreign Entity is to maintain monetary stability and promote the stability of the financial and payments system through conducting central banking activities.
6. The Foreign Entity performs public tasks and manages assets on behalf of Country X.
7. The Foreign Entity determines the amount of official foreign exchange reserves it requires and how it is invested. The reserves must be available for fulfilling the purpose of the central banking activities and for meeting international obligations.
8. Monies invested by the Foreign Entity are sourced from Country X.

Fund 1

9. Fund 1 is Country X's sovereign wealth fund where surplus wealth is held.
10. The purpose of Fund 1 is to save for future generations of the Country X population.
11. Fund 1 is not currently subject to any liability to make pension payments or distributions.
12. Fund 1 is governed by legislation and its management falls under Country X's supervision.
13. Fund 1 does not have a separate legal personality but rather constitutes a pool of segregated financial assets that Country X is beneficially entitled to.
14. Assets belong exclusively to Country X where investments are made in accordance with Country X Law.
15. Country X is ultimately responsible for Fund 1's management.
16. The net return on Fund 1 investments is credited to the Foreign Entity's deposit account so that it can be directly reinvested.
17. The Foreign Entity is not remunerated for carrying out Fund 1's management function but is entitled to reimbursement of costs it incurs.
18. The Foreign Entity is not remunerated for carrying out the management function of Fund 1 but is entitled to reimbursement of costs it incurs.
19. Fund 1's management costs are strictly controlled by Country X.

Foreign Entity's investments in Australia

20. The Australian equity investments held by the Foreign Entity include shares in Australian companies and units in Australian Managed Investment Trusts (MITs) with the following characteristics:

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

b.    The Foreign Entity hold less than 10% of the total equity interests on issue of each Australian company / MIT.

c.    The Foreign Entity has no involvement in the day to day management of the business of any of the Australian companies / MITs.

d.    The Foreign Entity has no right to appoint a director to the Board of Directors of the Australian company or equivalent role in a MIT.

e.    The Foreign Entity has no right to representation on any investor's representative or advisory committee (or similar) of the Australian company or MIT.

f.     The Foreign Entity has no ability to direct or influence the operation of the Australian company or MIT outside of the ordinary rights conferred by the equity interest held.

g.    The Foreign Entity only holds rights to vote in proportion to its equity interest in each Australian company or MIT.

21. The Australian debt investments held by the Foreign Entity are made in corporate, securitised, index linked and Government bonds and treasuries from which income will be ordinary derived in the form of interest and have the following characteristics:

a.    The Foreign Entity holds less than 10% of the total equity interests on issue of each Australian debt issuer.

b.    The Foreign Entity has no involvement in the day to day management of the business of any the Australian debt issuers.

c.    The Foreign Entity has not acquired the right to appoint a director to the Board of Directors of any issuing Australian debt issuer.

d.    The Foreign Entity has not acquired the right to representation on any investor's representative or advisory committee (or similar) of the Australian debt issuer.

e.    The Foreign Entity has no ability to direct or influence the operation of the Australian debt issuer outside of the ordinary rights conferred by the debt interest held.

f.     The Foreign Entity has no voting rights in respect of the debt investments held.

g.    There are no special relationships or arrangements between the Foreign Entity and the issuers of the Australian debt investments held, which affect the amount of interest income that is paid from those investments.

h.    The Foreign Entity has not entered into its debt investments with Australian organisations for the main purpose of obtaining an advantage by virtue of the operation of Article 11 of the DTA.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 880

Income Tax Assessment Act 1936 section 128B

Reasons for decision

Question 1

Is the ordinary and statutory income derived by Foreign Entity from its Australian investments, not assessable and not exempt income under section 880-105 of the ITAA 1997 except to the extent the amount is a fund payment attributable to types of non-concessional MIT income listed in subsection 880-105(3)?

Summary

Ordinary and statutory income derived by the Foreign Entity as a return on the investments is not assessable and not exempt income due to the operation of section 880-105 of the ITAA 1997 except to the extent the amount is a fund payment attributable to types of non-concessional MIT income listed in subsection 880-105(3).

Detailed reasoning

Section 880-105 of the ITAA 1997 provides that amounts of ordinary and statutory income derived by a sovereign entity are not assessable and not exempt income if certain conditions are met. Those conditions are listed in subsection 880-105(1) of the ITAA 1997:

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

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

(i) a *membership interest;

(ii) a *debt interest;

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

(c) the test entity is:

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

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

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

(i) at the income time; and

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

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

These conditions are considered below.

The Foreign Entity is a covered sovereign entity

Section 880-125 of the ITAA 1997 states:

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

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

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

(c) the entity is not a partnership;

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

(i) a *public non-financial entity;

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

These conditions are considered below.

Sovereign entity

For an entity to be covered by section 880-125 of the ITAA 1997, it must be a sovereign entity. Section 880-15 of the ITAA 1997 defines a sovereign entity to be any of the following:

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

(b) a *foreign government agency;

(c) an entity:

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

(ii) that is not an Australian resident; and

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

A 'foreign government agency' is defined in subsection 995-1(1) of the ITAA 1997 as:

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

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

(c) an authority of the government of part of a foreign country.

The Foreign Entity is the central bank of Country X. It is established by an act of Country X and is a resident of Country X. The Foreign Entity is a separate legal entity that is wholly owned by the Country X Government.

Fund 1 is Country X's sovereign wealth fund. It receives funds from the surplus wealth. Fund 1 is owned by Country X. Fund 1 is managed and supervised by Country X Government.

The Country X Government is a body politic of a foreign country.

The Foreign Entity assumes responsibility for the managing of the funds of Fund 1.

Based on the above facts, the Foreign Entity is a foreign government agency as defined in subsection 995-1(1) of the ITAA 1997 and is therefore a sovereign entity under paragraph 880-15(b) of the ITAA 1997.

Therefore, this requirement is satisfied.

The Foreign Entity is funded solely by public monies

The phrase 'public monies' is not defined and as such takes its ordinary meaning. In the context of Division 880 of the ITAA 1997, this phrase essentially means monies raised by a foreign government (or part of a foreign government) for a public purpose which form part of the foreign government's (or part of the foreign government's) equivalent to Australia's Consolidated Revenue Fund (Roy Morgan Research Pty Ltd v FC of T & Anor [2011] HCA 35). This would ordinarily include general tax revenue, proceeds from the issue of government bonds, the proceeds of privatisations, etc.

Fund 1 is a fund under the control of Country X for the benefit of Country X. Country X has deposited the funds from Fund 1 with the Foreign Entity who is required to invest the funds. The purpose of Fund 1 is to save for future generations of the Country X population.

Fund 1 is funded by Country X, which makes deposits into Fund 1. The deposits into the fund are sourced from Country X.

The Foreign Entity (and Fund 1) is therefore funded with public monies.

All returns on the Foreign Entity's investments are public monies

The Foreign Entity invests the money deposited into its account on behalf of Fund 1. The return from these investments is deposited back into the Fund 1 account held with the Foreign Entity.

Therefore, all returns from investments are public monies.

The Foreign Entity is not a partnership

The Foreign Entity has a requirement to hold the funds of Fund 1 in an account within it. Furthermore, it is required to invest those funds on behalf of Fund 1. The Foreign Entity does not own the funds nor does it receive the returns from its investments. The Foreign Entity itself was created by an act of Country X.

Therefore, the Foreign Entity is not a partnership.

The Foreign Entity is not a public non-financial entity or public financial entity

Subsection 880-130(1) of the ITAA 1997 defines the term public non-financial entity:

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

(a) producing or trading non-financial goods;

(b) providing services that are not financial services.

Subsection 880-130(2) of the ITAA 1997 defines the term public financial entity:

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

(a) it trades in financial assets and liabilities;

(b) it operates commercially in the financial markets;

(c) its principal activities include providing any of the following financial services:

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

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

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

It is noted that subparagraph 880-125(d)(ii) of the ITAA 1997 excludes public financial entities that only carry on central banking activities from being excluded as a covered sovereign entity.

The Commissioner has considered the facts and circumstances of this Ruling and is satisfied this condition is met.

As the Foreign Entity satisfies each of the requirements in paragraphs 880-125(a) through (d) of the ITAA 1997, it is considered a sovereign entity that is covered by section 880-125 of the ITAA 1997 for the purposes of paragraph 880-105(1)(a) of the ITAA 1997.

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

For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(b) of the ITAA 1997, it must be a 'return on' a membership interest, debt interest or non-share equity interest held by the sovereign entity in the test entities.

As detailed in paragraph 4.37 of the Explanatory Memorandum to the Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 ('the EM'), a 'return on' a membershipinterest for the purposes of paragraph 880-105(1)(b) will include:

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

2.    interest - including interest that passes through a MIT

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

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

The test entities for the purposes of this ruling are the publicly-traded companies and MITs in which the Foreign Entity holds shares and units respectively (which meet the requirements of being membership interests as defined by the interaction of sections 960-135 and 960-130 of the ITAA 1997) and pay to the Foreign Entity:

•         MIT fund payments, including interest components of trust distributions, and

•         dividends.

As such, the Foreign Entity will receive amounts which satisfy the requirements of paragraph 880-105(1)(b) of the ITAA 1997.

The Foreign Entity's income is received from Australian resident companies or MITs

For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(c) of the ITAA 1997, it must be received from an entity that is either:

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

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

The test entities are Australian resident companies and MITs.

As such, the Foreign Entity receives income from entities which satisfy the requirements of paragraph 880-105(1)(c) of the ITAA 1997.

The Foreign Entity satisfies the portfolio interest test

For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(d) of the ITAA 1997, the sovereign entity and the sovereign entity group to which it belongs must satisfy the portfolio interest test in relation to the test entity/ies at both the income time and throughout any 12 month period that began no earlier than 24 months before that time and ended no later than that time.

The portfolio interest test is outlined in subsection 880-105(4) of the ITAA 1997, which states:

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

(a) is less than 10%; and

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

i. an *equity holder were treated as a shareholder; and

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

Section 880-20 of the ITAA 1997 provides the definition of sovereign entity group. Broadly, sovereign entities of the same foreign government will be members of the same sovereign entity group and sovereign entities of the same part of a foreign government will be members of the same sovereign entity group. The Foreign Entity holds less than 10% of the total shares on issue of each Australian company and less than 10% of the total units on issue of each Australian trust.

As such, the Foreign Entity's interest in the test entity satisfies the requirements of paragraph 880-105(1)(d) of the ITAA 1997.

The Foreign Entity does not have influence of a kind described in subsection 880-105(6) of the ITAA 1997

For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(e) of the ITAA 1997, at the income time the sovereign entity group to which the sovereign entity belongs must not have influence over the test entity of a kind described in subsection 880-105(6) of the ITAA 1997.

Subsection 880-105(6) of the ITAA 1997 states:

A *sovereign entity group has influence of a kind described in this subsection in relation to the test entity at a time if any of the following requirements are satisfied at that time:

a) a *member of the group:

(i) is directly or indirectly able to determine; or

(ii) in acting in concert with others, is directly or indirectly able to determine;

the identity of at least one of the persons who, individually or together with others, make (or might reasonably be expected to make) the decisions that comprise the control and direction of the test entity's operations;

b) at least one of those persons is accustomed or obliged to act, or might reasonably be expected to act, in accordance with the directions, instructions or wishes of a member of the group (whether those directions, instructions or wishes are expressed directly or indirectly, or through the member acting in concert with others).

As such, there are two distinct sub-tests within the influence test.

Sub-test 1 of the influence test, as contained in paragraph 880-105(6)(a), assesses whether the sovereign entity group is able to determine the identity of at least one of the persons who, individually or together with others, makes or is reasonably expected to make, decisions comprising the control and direction of the test entity's operations. This includes situations where the sovereign entity group is able to act in concert with others to determine the identity of a relevant decision-maker in the test entity.

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

Sub-test 2 of the influence test, as contained in paragraph 880-105(6)(b) of the ITAA 1997, assesses whether at least one of the relevant decision-making persons of the test entity is accustomed or obliged to act, or might reasonably be expected to act, in accordance with the directions, instructions or wishes of the sovereign entity group.

In relation to the Foreign Entity's investments in the Australian companies and trusts:

(a)  the Foreign Entity has no involvement in the day to day management of the business of any of the Australian companies or trusts

(b)  the Foreign Entity has no right to appoint a director to the Board of Directors of any of the Australian companies and has no right to appoint a director to the Board of Directors of any of the trustee companies for the trusts

(c)   the Foreign Entity has no right to representation on any investor representative or advisory committee (or similar) of any of the Australian companies or trusts

(d)  the Foreign Entity has no ability to direct or influence the operation of the Australian company or trust outside of the ordinary rights conferred by the share or unit interest held, and

(e)  the Foreign Entity only holds rights to vote as a shareholder or unitholder in proportion to its share interest in the Australian companies or trusts.

Based upon the above, the sovereign entity group of Foreign Entity does not have influence of a kind described in subsection 880-105(6) of the ITAA 1997 and will, therefore, satisfy the requirements of paragraph 880-105(1)(e) of the ITAA 1997.

Conclusion

As all of the conditions listed in subsection 880-105(1) of the ITAA 1997 have been satisfied, section 880-105 of the ITAA 1997 will apply to the effect that amounts of ordinary and statutory income derived by the Foreign Entity from its investments in the Australian investments are not assessable and not exempt income (except to the extent the amount is a fund payment attributable to types of non-concessional MIT income listed in subsection 880-105(3)).

Question 2

Will any capital gain arising to Foreign Entity from a CGT event that happens in relation to the equity investment assets and certain debt investment assets comprised within Fund 1 be disregarded pursuant to section 880-115 of the ITAA 1997?

Summary

Any capital gain arising to the Foreign Entity from a CGT event that happens in relation to the equity investment assets and certain debt investment assets comprised within Fund 1, will be disregarded pursuant to section 880-115 of the ITAA 1997.

Detailed Reasoning

Section 880-115 of the ITAA 1997 provides that a capital gain of a sovereign entity from a Capital Gains Tax (CGT) event that happens in relation to a CGT asset is disregarded if the following conditions are met:

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

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

(c)   the requirements in paragraphs 880-105(1)(c), (d) and (e) would be satisfied, on the assumptions that:

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

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

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

1. The Foreign Entity is a sovereign entity as covered by section 880-125 of the ITAA 1997

As noted in Question 1, the Foreign Entity is a sovereign entity that is covered by section 880-125 of the ITAA 1997.

Therefore, this requirement is satisfied.

2. CGT asset is a membership interest, non-share equity interest or debt interest in another entity

As noted in Question 1, the assets are debt interests and membership interests in Australian resident companies and MITs.

Therefore, this requirement is satisfied.

3. The requirements of paragraphs 880-105(c) to (e) of the ITAA 1997 have been satisfied

The requirements in paragraphs 880-105(c), (d) and (e) of the ITAA 1997 are satisfied and would be under the assumptions listed.

Conclusion

As all the requirements in section 880-115 of the ITAA 1997 are satisfied, the Foreign Entity will disregard any capital gain that may arise to Foreign Entity in relation to the equity investments and certain debt investments comprised within Fund 1.

Question 3

If the answers to Questions One and Two above are yes, does paragraph 128B(3)(n) of the ITAA 1936 (for interest and dividends) and subsection 840-805(9) of the ITAA 1997 (for fund payments from MITs) apply to exclude Foreign Entity from liability to withholding tax on income where the income from the investments is not assessable income and is not exempt income due to the operation of Division 880 of the ITAA 1997?

Summary

As the answers to Questions One and Two above are yes, Foreign Entity is exempt from liability to withholding tax in respect of interest, dividends and fund payments that are non-assessable non-exempt income because of Division 880 of the ITAA 1997.

Detailed Reasoning

Exclusion under subparagraph 128(3)(n) of the ITAA 1936

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)(n) of the ITAA 1936 states that this includes income that is non-assessable non-exempt income because of Division 880 of the ITAA 1997 or Division 880 of the IT(TP)A 1997.

Exclusion under subsection 840-805(9)

Subsection 840-805(1) imposes a liability for MIT withholding tax on amounts paid to in accordance with subsections 840-805(2), (3) and (4). Subsection 840-805(9) applies to exclude liability to withholding tax if the payments made relate to an amount that is non-assessable non-exempt income because of:

(a) Division 880, or

(b) Division 880 of the IT(TP)A 1997.

Section 6-23 of the ITAA 1997 provides that an amount of ordinary income or statutory income is non-assessable non-exempt income if a provision of the ITAA 1997 or of another Commonwealth law states that it is not assessable income and is not exempt income.

As established in Question 1, the ordinary and statutory income derived by Foreign Entity as a return on its investments in the test entities is not assessable income and is not exempt income due to the operation of Division 880 of the ITAA 1997.

Conclusion

Therefore, to the extent that Division 880 of the ITAA 1997 applies to income of Foreign Entity from its investments, Foreign Entity is excluded from liability to withholding tax on its interest and/or dividend income in respect of these investments under paragraph 128B(3)(n) of the ITAA 1936, and Foreign Entity is excluded from liability to withholding tax on amounts it receives in respect of these investments under subsections 840-805(2), (3) and (4) in accordance with subsection 840-805(9).

Question 4

Will Article 11 of the DTA exempt Foreign Entity from liability to tax in Australia on interest income received from debt investments in corporate, securitised, index linked and Government bonds and treasuries from which it will ordinarily derive income in the form of interest when made within the parameters contained in paragraph 21 of the relevant facts and circumstances of this Ruling?

Summary

Article 11 of the DTA will exempt Foreign Entity from liability to tax in Australia on interest income received from debt investments in corporate, securitized, index linked and Government bonds and treasuries from which income will ordinarily be derived in the form of interest when made within the parameters contained in paragraph 21 of this Ruling.

Detailed Reasoning

Non-resident taxpayers will generally be liable to pay income tax under section 4-1 of the ITAA 1997 or withholding tax under section 128B of the ITAA 1936 on Australian sourced income, unless an exemption or exclusion applies.

A non-resident is liable to pay withholding tax under subsection 128B(5) of the ITAA 1936 if the 'non-resident' derives income that consists of interest and the requirements of subsection 128B(2) of the ITAA 1936 are satisfied in relation to that income. Subsection 128B(2) of the ITAA 1936 provides that:

Subject to subsection (3), this section... applies to income that:

(a) is derived... by a non-resident; and

(b) consists of interest that:

(i) is paid to the non-resident....

Where none of the exclusions listed in subsection 128B(3) of the ITAA 1936 apply to Foreign Entity in relation to the relevant interest income, in determining liability to Australian tax on Australian source income derived by a non-resident, it is necessary to consider not only the income tax laws but also any applicable Convention or DTA contained in the International Tax Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

The DTA between Australia and Country X is known as 'the DTA'. Article 11 of the DTA specifically deals with interest. The term 'interest' in the DTA includes interest from Government securities or from bonds or debentures, whether or not secured by mortgage, interest from any other form of indebtedness, as well as income which is subjected to the same taxation treatment as income from money lent by the law of the Contracting State in which the income arises.

The Foreign Entity has also invested (subject to certain parameters) in debt investments in corporate, securitised, index linked and Government bonds and treasuries in which Article 11 of the DTA will apply.

The DTA states that interest arising in Australia and beneficially owned by a resident of Country X may not be taxed in Australia if the interest is derived from the investment of official reserve assets by the government of a Contracting State, its monetary institutions or a bank performing central banking functions in that State.

Foreign Entity is the central bank of Country X, a separate legal entity and owned by the Government of Country X. The purpose of the Foreign Entity is to maintain monetary stability and promote the stability of the financial and payments system through conducting central banking activities. The Foreign Entity performs public tasks and manages assets on behalf of the Country X. Country X law authorises the Foreign Entity to implement measures customarily or ordinarily taken by a central bank.

Foreign Entity manages Fund 1, which is Country X's sovereign wealth fund. Fund 1's purpose is to save for future generations of the Country X population.

As such, the interest that the Foreign Entity will derive from their investments in Australian corporate, securitised, index linked and Government bonds and treasuries will be derived from the investment of official reserve assets by a bank performing central banking functions in Country X, on behalf of Country X.

Where the investments fall within the parameters contained in paragraph 21 of the relevant facts and circumstances of this Ruling, including that the Foreign Entity has no special relationships or arrangements with the issuers of any Australian debt investment and does not enter into the investment for the main purpose of obtaining an advantage by virtue of the operation of Article 11 of the DTA, the DTA will apply.

Consequently, interest derived by the Foreign Entity on the investments outlined in the Ruling will not be taxable in Australia by virtue of the operation of the DTA.

Conclusion

Interest derived by the Foreign Entity on the debt investments in Australian corporate, securitised, index linked and Government bonds and treasuries will be exempt from tax in Australia under Article 11 of the DTA.