Edited version of private advice

Authorisation Number: 1052378674105

Date of advice: 16 April 2025

Ruling

Subject: Withholding taxes

Question 1

Is the Fund exempt from liability to withholding tax on interest and dividend and non-share dividend income derived from Australian resident companies from its Australian investments in accordance with paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer 1

Yes.

This ruling applies for the following periods:

1 January 20XX to 30 December 20XX

The scheme commenced on:

1 January 20XX

Relevant facts and circumstances

The Fund

The Fund was established by legislation.

The Fund is a defined benefit plan that provides retirement, disability, and survivor benefits to employees of certain employers.

Membership of the Fund ceases when a member either:

•                     Withdraws their accumulated contributions

•                     Retires on a retirement allowance

•                     Dies.

By statute, benefit plans include retirement for age and service, disability benefits, and survivor benefits that are paid upon the death of a member before retirement.

The Fund is governed by legislation.

A Retirement Board is responsible for the general administration and management of the Fund.

The Fund's registered office is located outside of Australia.

Legislation requires contributions by covered employee members and their employers and limits the maximum rate of contributions. The Fund's Retirement Board sets contribution rates within the allowable limits.

The Fund's defined benefit plan provides a lifetime pension. A formula is used to calculate the member's annual pension.

At retirement, there are a number of pension options available.

If a member dies, a death benefit may be paid as set out in the Fund/ plan rules.

The Fund cannot pay partial refunds or provide loans on accumulated contributions. No interest is paid on a refund, and the member receives no part of the employer's contributions.

The Fund's Australian Investments

The Fund is in receipt of Australian sourced income which may include interest, dividends and non-share dividends from Australian Securities Exchange (ASX) listed companies, Real Estate Investment Trust (REIT) Funds and stapled securities.

The Fund predominately uses external managers such as W, X, Y & Z for its investments.

The Fund's sub-custodian is A.

To the best of the Fund's knowledge, the investments held by the Fund have the following characteristics:

•                     The Fund holds less than 10% of the total participation interests on issue in each of the entities.

•                     The Fund has no right to appoint a person to a board, committee or similar, either directly or indirectly.

•                     The Fund has not entered into or received any side letters, arrangements or agreements

•                     The Fund holds no veto rights on security holder votes

•                     The Fund holds no other influence potentially of a kind described in subsection 128B(3CD) of the ITAA 1936.

Other Relevant Facts

The Fund was established in and is a resident of a country outside of Australia.

All Retirement Board meetings are held outside of Australia and the members of the Board are residents of a country outside of Australia.

The Fund's central management and control is carried on outside Australia by entities none of whom are Australian residents.

The Fund is exempt from tax in its country of residence.

The Fund is an indefinitely continuing fund.

An amount paid to the Fund cannot be deducted under the ITAA 1936 or the Income Tax Assessment Act 1997 (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.

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

Relevant legislative provisions

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

Income Tax Assessment Act 1936 section 128D

Income Tax Assessment Act 1997 section 118-520

Reasons for decision

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) of the ITAA 1936 provides an exclusion from withholding tax on interest, dividends and non-share dividends paid by an Australian resident company 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 12936 must also be met.

Except where the transitional rules in Schedule 3 to the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 (Amendment Act) apply, from 1 July 2019, the extra requirements in subsection 128B(3CA) must also be met.

Schedule 3 of the Amendment Act amended the ITAA 1936 to improve the integrity of the income tax law to limit access to tax concession for foreign investors. For superannuation funds for foreign residents, this was achieved by limiting the withholding tax exemption to interest, dividend and non-share dividend income derived from an entity in which the superannuation fund has a portfolio-like interest.

The amendments to limit the withholding tax exemption apply to income that is derived by a superannuation fund on or after 1 July 2019.

The Fund a non-resident

The Fund is not a resident of Australia for tax purposes. The Fund is incorporated by legislation in a foreign country and is a resident of that foreign country. The funds management is also based in a foreign country.

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:

(i)            is an indefinitely continuing fund

(ii)           is a provident, benefit, superannuation or retirement fund

(iii)          was established in a foreign country

(iv)          was established and maintained only to provide benefits for individuals who are not Australian residents

(v)           has its central management and control carried on outside of Australia by entities none of whom are Australian residents

(vi)          does not receive or have amounts set aside for it that have been or can be deducted under the ITAA 1936 or the ITAA 1997

(vii)         does not receive or have amounts set aside for it that give rise to a tax offset

(viii)        derives income that consists of interest, or consists of dividends or non-share dividends paid by a company that is an Australian resident, and

(ix)          is exempt from income tax in the country in which the non-resident resides.

These requirements are considered below.

The Fund is an indefinitely continuing fund

The term '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 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.

3.            ...money resources.

In Scott v Commissioner of Taxation (No 2) (1966) 40 ALJR 265 (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; who stated that 'for present purposes, the point is the need for "money" or "other property" to constitute a fund'.

The Fund is responsible for managing the assets of the Fund in order to fund benefits provided to the Funds members (or their beneficiaries) on their retirement or on other contemplated contingencies such as death or disability.

The Fund is therefore a 'fund' within the ordinary meaning of the term.

Neither the ITAA 1936 or the ITAA 1997 provide guidance on the meaning of 'indefinitely continuing', however, the ordinary meanings of 'indefinitely' and 'continuing' involve little ambiguity or controversy.

The Australian Oxford Dictionary defines the 'indefinitely' as '1. for an unlimited time...2. in an indefinite manner' and 'continuing' as '...persist in, maintain, nonstop'.

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 was established by legislation, the terms of which do not provide that the Fund must be wound up after a specified period of time. They have also confirmed there are no plans to wind down the Fund. The Fund therefore cannot be discontinued until the legislation is amended or repealed.

In addition, there is no indication that there is any contemplation of the Fund ending at a defined point in time and there is no expectation that the Plans or the Fund will be discontinued in the foreseeable future.

Therefore, it is accepted that the Fund is an indefinitely continuing fund.

A provident, benefit, superannuation or retirement fund

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

In Scott, Windeyer J stated at 278:

There is no definition in the Act of a superannuation fund. The meaning of the term must therefore depend upon ordinary usage...I have come to the conclusion that there is no 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 Mahony v Commissioner of Taxation (1967) 41 ALJR 232, Kitto J stated at 232:

There was no definition in the Act of 'a provident, benefit or superannuation fund', and the meaning of the several expressions must therefore be arrived at in light of ordinary usage and with only one piece of assistance to be gathered from the immediate context. Since a fund, if its income was to be exempt under the provision, was separately required to be one established for the benefit of employees, each of the three descriptive words 'provident', 'benefit' and 'superannuation' must be taken to have connoted a purpose narrower than the purpose of conferring benefits, in a completely general sense, upon employees. Precise definition may be difficult, and in any case is unnecessary for present purposes. All that need be recognized 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 employment, 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 in a general sense, but characterized by some specific future purpose. A funeral benefit is a familiar example.

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.

ATO Interpretative Decision ATO ID 2009/67 Income Tax: Superannuation fund for foreign residents (ATO ID 2009/67) refers to these authorities and provides the following guidance on the meaning of the phrase:

The courts have held that for a fund to be a 'provident, benefit, superannuation or retirement fund', the fund's sole purpose must be to provide superannuation benefits, that is, benefits to a member upon the member reaching a prescribed age or upon their retirement, death or other cessation of employment (Scott v. FC of T (No 2) (1966) 14 ATD 333; (1966) 10 AITR 290, per Windeyer J; Mahony v. FC of T (1967) 14 ATD 519, per Kitto J; Walstern Pty Ltd v. Commissioner of Taxation (2003) 138 FCR 1; 2003 ATC 5076; (2003) 54 ATR 423, per Hill J and Cameron Brae Pty Ltd v. Federal Commissioner of Taxation (2007) 161 FCR 468; 2007 ATC 4936; (2007) 67 ATR 178, per Stone and Allsop JJ).

The relevant authorities therefore establish that in order for a fund to qualify as a 'provident, benefit, superannuation or retirement fund', it must have the sole purpose of providing retirement benefits or benefits in other contemplated contingencies (such as death, disability or serious illness).

The Fund is responsible for managing the assets of the Funds that make up the defined benefit plan. The defined benefit plan is a pension plan that exists to benefit individuals who are residents outside of Australia.

Benefits from the Fund are only available to members, who have retired or become disabled. Alternatively, benefits may be paid to beneficiaries of certain members.

The circumstances in which a member of the Fund can ordinarily receive funds from the Fund upon retirement from employment are clearly consistent with those of a provident, benefit, superannuation or retirement fund.

The majority of the benefits paid by the Fund are only available upon retirement. Further, the alternative circumstances of access available to members and their beneficiaries, which include disability and death benefits, are considered to align with the contemplated contingencies of a 'provident, benefit, superannuation or retirement fund' as outlined in the relevant judicial decisions and ATO ID 2009/67.

As both the objective of the Fund and the actual operation of the Fund have the sole purpose of providing retirement benefits or benefits in alignment with other contemplated contingencies, The Fund is considered to be a provident, benefit, superannuation or retirement fund.

It is therefore reasonable to conclude that the Fund satisfies this requirement.

Established in a foreign country

The Fund was established outside of Australia.

Therefore, the Fund was established in a foreign country and this requirement is satisfied.

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

The Fund was established and is maintained to provide benefits to the members who are or were employed outside of Australia all of whom are not Australian residents.

Therefore, the Fund satisfies this requirement.

Central management and control is carried on outside Australia by entities none of whom is an Australian resident

Paragraphs 20 and 21 of Taxation Ruling TR 2008/9 Income tax: meaning of 'Australian superannuation fund' in subsection 295-95(2) of the Income Tax Assessment Act 1997 (TR 2008/9)states in respect of the central management and control (CM&C) of a superannuation fund:

20. The CM&C of a superannuation fund involves a focus on the who, when and where of the strategic and high level decision making processes and activities of the fund. In the context of the operations of a superannuation fund, the strategic and high level decision making processes includes:

•                     formulating the investment strategy for the fund;

•                     reviewing and updating or varying the fund's investment strategy as well as monitoring and reviewing the performance of the fund's investments;

•                     if the fund has reserves - the formulation of a strategy for their prudential management; and

•                     determining how the assets of the fund are to be used to fund member benefits.

21. The other principal areas of operation of a superannuation fund that form part of the day-to-day or operational side of the fund's activities will not constitute CM&C. These activities do not form part of the CM&C of the fund because they are not of a strategic or high level nature. Rather, these activities are of a more formalistic or administrative nature. Examples of such activities include the acceptance of contributions that are made on a regular basis, the actual investment of the fund's assets, the fulfilment of administrative duties and the preservation, payment and portability of benefits.

Furthermore, paragraphs 10 and 11 of Taxation Ruling TR 2018/5 Income tax: central management and control test of residency (TR 2018/5) states:

10. Central management and control refers to the control and direction of a company's operations. It does not refer to a physical location in which the control and direction of a company is located and may ultimately be exercised in more than one location.

11. The key element in the control and direction of a company's operations is the making of high-level decisions that set the company's general policies and determine the direction of its operations and the type of transactions it will enter.

The Funds head office is located outside of Australia. In addition, the Funds central management and control is carried on outside of Australia by persons none of whom is a resident of Australia.

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

Therefore, the Fund satisfies this requirement.

Does not receive, or have amounts set aside for it, that have been or can be deducted under the ITAA 1936 or 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.

The Fund has advised that no amounts that have been paid to the Fund, or have been set aside to be paid to the Fund, have or can be deducted under the ITAA 1936 or ITAA 1997.

Therefore, the Fund satisfies this requirement.

Does not receive, or have amounts set aside for it, that give rise to a tax offset

The Fund has advised that no amounts that have been paid to the Fund, or set aside to be paid to the Fund, are amounts for which a tax offset has been allowed, or would be allowable, under the ITAA 1936 or the ITAA 1997.

Therefore, the Fund satisfies this requirement.

Derives income that consists of interest, or consists of dividends or non-share dividends paid by a company that is an Australian resident

Paragraph 128B(3)(ga) of the ITAA 1936 prescribes that section 128B of the ITAA 1936 will not apply to income that consists of the franked part of a dividend. Therefore it is only necessary to consider dividend income that is unfranked for the purposes of the exemption in 128B(3)(jb).

The income the Fund receives from its Australian investments includes unfranked dividends paid by Australian companies that are listed on the ASX.

If that part of the dividend is franked then no withholding tax has been paid and no amount of withholding tax is to be reclaimed (paragraph 128B(3)(ga) of the ITAA 1936.

The Fund's investment portfolio includes investments in complex investment structures. The income the Fund receives from these investments may include interest, unfranked dividends or non-share dividends paid by Australian companies. These types of income qualify for the withholding tax exemption in paragraph 128B(3)(jb) as the Fund meets the other requirements of the section. However, the income received from these investments may also include other payments.

Any amounts of withholding tax withheld from income that is not:

•                     interest

•                     dividends paid by an Australian resident company

•                     non share dividends paid by an Australian resident company

will not be eligible for the exemption from withholding tax under paragraph 128B(3)(jb) of the ITAA 1936.

The 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 derive the income that consists of interest, dividends or non-share dividends paid by Australian resident companies.

It is accepted that unfranked dividends from the Fund investments would be derived by the Fund for the purposes of subsection 128B(3CA) of the ITAA 1936 and paragraph 128B(3)(jb) of the ITAA 1936.

Therefore, the Fund will satisfy this requirement.

Is exempt from income tax in the country in which it resides

The Fund is exempt from tax in the country in which it resides and this requirement is satisfied.

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.

As outlined above, due the operation of the Schedule 3 of the Amendment Act, in order to be excluded from liability to withholding tax under paragraph 128B(3)(jb) of the ITAA 1936, the additional requirements in subsection 128B(3CA) must also be met for investments made from 1 July 2019.

Relevantly:

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

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

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

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

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

These requirements are considered below.

The Fund satisfies the 'portfolio interest test' in relation to the entities

Subsection 128B(3CC) states:

(3CC) 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 the 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 provides 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 subsection 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.

Based on the review of the Australian investments, the Commissioner is satisfied that the total participation interest that 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 current investments.

The Fund satisfies the 'influence test' in relation to the entities

Subsection 128B(3CD) states the following:

(3CD) 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), assesses whether the foreign superannuation 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 foreign superannuation fund is able to act in concert with others to determine the identity of a relevant decision-maker in any of the entities.

Sub-test 1 also extends to situations where the foreign superannuation fund, in its own right, holds the ability to approve or veto decisions which go to the control or direction of any of the entities.

Law Companion Ruling LCR 2020/3 - The superannuation fund for foreign residents withholding tax exemption and sovereign immunity (LCR 2020/3) provides examples and guidance on the 'influence test' and states the following at paragraphs 11 to 13 with respect of sub-test 1:

11.          Whether the relevant entity is able to determine the identity of (to settle or decide upon, to choose or appoint) one of those persons is a question of fact. The phrase 'able to' focuses on the relevant entity's capacity or power. The sub-test is therefore not limited to situations where the entity has already determined, or intends to determine, the identity of one of the relevant decision makers. A right to determine will be sufficient for the requisite level of influence to exist.

12.          The relevant entity will not be 'able to' determine, as a matter of fact, where it has irrevocably and unconditionally waived its rights by way of a legally enforceable agreement.

13.          The sub-test also extends to situations where the relevant entity has the indirect capacity to determine the identity of one of the relevant decision makers. This may occur, for example, where the relevant entity controls another entity and that other entity holds the right to determine the decision-maker's identity.

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.

LCR 2020/3 provides the following guidance at paragraph 29 in respect of sub-test 2:

29.          The three matters ('accustomed', 'obliged' or 'might reasonably be expected to') are not a composite phrase denoting a single test; they comprise different considerations each of which is sufficient to establish influence:

•                    Whether a person is 'accustomed' to act in accordance with the directions, instructions or wishes of the relevant entity requires an analysis of past facts. This necessitates an examination of any discernible pattern of the person following the directions, instructions or wishes given by the relevant entity.

•                    Whether a person is 'obliged' to act in accordance with the directions, instructions or wishes of the relevant entity depends upon a formal or informal obligation existing at the relevant time.

•                    Whether a person 'might reasonably be expected' to act in accordance with the directions, instructions or wishes of the relevant entity requires a prediction as to future events and a consideration as to the objective likelihood of those future events occurring. This requires a consideration of all of the facts and circumstances impacting upon the relationship between the two parties.

The following are relevant in determining whether the Fund satisfies the 'influence test' in respect of its Australian investments:

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

•                     The Fund does not hold any right to appoint a person to a board, committee, or similar, either directly or indirectly

•                     The Fund has not entered into or received any side letters, arrangements or agreements

•                     The Fund does not hold any veto rights on security holder votes

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

Based on the above, the Commissioner has determined that it is reasonable to conclude that the Fund does not have influence over the Australian entities in which it invests of the kind described in subsection 128B(3CD).

Therefore, the Fund satisfies this requirement.

The income derived by the Fund cannot otherwise be non-assessable non-exempt income.

The interest, dividend and non-share dividend income from Australian resident companies received by the Fund will not be non-assessable non-exempt income because of Subdivision 880-C of the ITAA 1997 or Division 880 of the Income Tax (Transitional Provisions) Act 1997.

Therefore, the Fund satisfies this condition in respect of its current Australian.

Conclusion

As the Fund has met both the pre-existing and extra requirements under paragraph 128B(3)(jb) of the ITAA 1936, the Fund is excluded from withholding tax in relation to dividend income derived from its current Australian investments.

Prima facie, the Fund is excluded from withholding tax in relation to interest income and dividend and non-share dividend income it receives from its Australian investments, provided:

•                     The Fund derives the income at a relevant time

•                     any dividend and non-share dividend income is derived from an Australian resident company, or an entity that is treated as such under Australian tax law.

ATO view documents

ATO Interpretative Decision ATO ID 2009/67 Income Tax: Superannuation fund for foreign residents

Law Companion Ruling LCR 2020/3 - The superannuation fund for foreign residents withholding tax exemption and sovereign immunity

Taxation Ruling TR 2008/9 Income tax: meaning of 'Australian superannuation fund' in subsection 295-95(2) of the Income Tax Assessment Act 1997

Taxation Ruling TR 2018/5 Income tax: central management and control test of residency

Other references (non ATO view)

Scott v. FC of T (No 2) (1966) 40 ALJR 265; (1966) 14 ATD 333; (1966) 10 AITR 290

Mahoney v. Federal Commissioner of Taxation (1967) 41 ALJR 232; (1967) 14 ATD 519; (1967) 10 AITR 463

Walstern Pty Ltd v Commissioner of Taxation (2003) 138 FCR

Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019