Is the Fund excluded from liability to withholding tax on interest, dividend and non-share dividend income derived from the Australian Investments listed in Appendix 1 of this Ruling under paragraph 128B(3)(jb) of the ITAA 1936?
Yes. This ruling applies for the following periods : 1 January 20XX to 31 December 20XX The scheme commenced on: 1 January 20XX
The Fund The Fund was established under a trust agreement (the Trust Agreement). Under the Trust Agreement, the Fund was established under the laws of the Foreign Country (the Foreign Country) to serve as a medium for the comingled investment and administration of the assets of defined benefit and defined contribution plans provided by the Corporate Group (the Corporate Group). The Corporate Group is located in the Foreign Country. While the Fund has historically invested funds for defined contribution plans and defined benefit plans, the Fund now only invests funds for two defined benefit pension plans (the Pension Plans). Affiliate entities within the Corporate Group are the sponsors and administrators of the Pension Plans. Contributions to the Pension Plans are made by entities within the Corporate Group from time to time and not on a coordinated basis. Employees do not make contributions to either of the Pension Plans, or to the Fund. Contributions made to each of the Pension Plans by entities in the Corporate Group are then provided to the Fund to be invested. The Pension Plans and each of their sub-plans, have the following characteristics:
a. Each plan is closed to new participants. b. Each plan only provides entitlements in circumstances of death, disability or retirement, or on cessation of employment from the Corporate Group. c. Each of the circumstances in which the plans provide entitlements are subject to the plan participant meeting vesting requirements. d. The plans do not allow for withdrawals of any kind while the participant remains an active employee of the Corporate Group. e. The plans provide benefit options including lump sum, single life annuity and multiple joint and survivor annuity percentage options. f. Payments are based on the value of the participant's accrued pension benefit at time of retirement or cessation of employment with the Corporate Group. g. The plans do not have their own boards of trustees. h. Each plan only invests its plan assets through the Fund and not through any other means. Fund Structure and Functions
The Fund's trustee is the Trustee (the Trustee). The Fund maintains a separate custodial account with the Trustee for each of its investment portfolios and for its cash reserve. The Pension Plans each beneficially own the assets in each account in proportion to the units in the Fund held by the plan as of the relevant date of determination. Each Pension Plan has a holding of units in the Fund which is tracked at the plan level. The Fund's central management and control is the responsibility of the Management Company, which is a member of the Corporate Group. Management Company and all of Management Company's authorised signatories are residents of the Foreign Country. The sum of benefits due to participants each month under the Pension Plans is calculated by the Administrators and communicated to the Trustee who transfers the required funds to the Administrators for distribution to plan participants.
Effective the date funds are transferred to the Administrator, each plan redeems some of its units to fund the relevant benefit payment. The units are redeemed at the Fund's net asset value per unit on such a date. So many units are redeemed at the net asset value per unit that is required to meet the aggregate amount of the benefit payments being made. Operating costs and expenses of the Fund reduce the Fund's net asset value, which in turn reduces the Fund's net asset value per unit. Under the Trust Agreement, any entity which is part of the Corporate Group, which meets certain conditions may adopt the Fund's Trust Agreement for the collective investment and management of that plan's assets. There is no present intention to wind up or terminate the Fund. The Fund has provided a letter from the tax authority of the Foreign Country confirming that the Fund is a resident of the Foreign Country and is exempt from taxation in the Foreign Country. Australian Investments - Appendix 1 The Fund holds a portfolio of Australian Investments listed in Appendix 1 of this Ruling. All of the Australian Investments have the following characteristics:
a. All investments are in entities listed on the Australian Securities Exchange (ASX). b. The Fund holds less than 10% of the total participation interests in each entity it has invested in and has never held more than a 10% participation interest. c. The Fund would hold less than 10% of the total participation interests in each entity in the circumstances detailed in paragraph 128B(3CC)(b) of the ITAA 1936. d. Neither the Fund nor any related party of the Fund, has involvement in the day-to-day management of the business of any of the Australian companies. e. Neither the Fund, nor any related party of the Fund, has the right to appoint a director to the Board of Directors of the Australian company. f. Neither the Fund, nor any related party of the Fund, holds the right to representation on any investor representative or advisory committee (or similar) of the Australian company. g. Neither the Fund, nor any related party of the Fund, has the ability to direct or influence the operation of the Australian company outside of the ordinary rights conferred by the equity or debt interest held.
h. The Fund only hold rights to vote in proportion to its equity interest in each Australian company and does not hold any veto rights on security holder votes. Other Relevant Facts The Fund has provided a statement confirming that: a. No amount paid to the Fund or set aside for the Fund, has been or can be deducted under the Income Tax Assessment Act 1997 (ITAA 1997). b. No tax offsets have been allowed or would be allowable for an amount paid to or set aside for the Fund. c. Income of the Fund is not non-assessable non-exempt income because of: i. Subdivision 880-C of the ITAA 1997, or ii. Division 880 of the Income Tax (Transitional Provisions) Act 1997 .
Income Tax Assessment Act 1936 paragraph128B(3)(jb)
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) and 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 includes: (jb) income that: (i) is derived by a non-resident that is a superannuation fund for foreign residents; and (ii) consists of interest, or consists of dividends or non-share dividends paid by a company that is a resident; and (iii) is exempt from income tax in the country in which the non-resident resides; Subitem 3(1) of Part 2 of Schedule 3 of Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 (2019 Act) provides (subject to subitems (2) and (3)) that for income derived from 1 July 2019, the extra requirements in subsection 128B(3CA) of the ITAA 1936 must also be met. These requirements are considered below.
Income that is derived For paragraph 128B(3)(jb) of the ITAA 1936 to apply, the superannuation fund for foreign residents must derive the relevant income. The Fund is the entity which holds the relevant investments and is paid the dividend and interest income from the Australian resident companies. The Commissioner therefore accepts that the Fund derives the relevant income. Therefore, the Fund satisfies this requirement. A non-resident The Fund is not a resident of Australia for tax purposes as it is established in the Foreign Country. The Fund has provided a letter from the tax authority in the Foreign Country confirming it is a resident of the Foreign Country. Therefore, the Fund satisfies this requirement. A superannuation fund for foreign residents The term 'superannuation fund for foreign residents' is a defined term in section 6 of the ITAA 1936 which states: superannuation fund for foreign residents has the meaning given by subsection 995-1(1) of the ITAA 1997. Subsection 995-1(1) of the ITAA 1997 sets out that: superannuation fund for foreign residentshas the meaning given by section 118-520. Section 118-520 of the ITAA 1997 states the following:
(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; (b) a tax offset has been allowed or is allowable for such an amount. These requirements are considered below. The fund is an indefinitely continuing fund The legislation provides no guidance on the meaning of 'indefinitely continuing'. It is not a technical legal expression, and the ordinary meanings of 'indefinitely' and 'continuing' involve little ambiguity or controversy. The Macquarie Dictionary
, [Online], viewed 22 June 2022, www.macquariedictionary.com.au defines 'indefinitely' and 'continuing' as follows: Indefinite: 1. not definite; without fixed or specified limit; unlimited: an indefinite number. 2. not clearly defined or determined; not precise. indefinitely, adverb Continue: (verb (Continued, continuing)) 1. to go forwards or onwards in any course or action; keep on. 2. to go on after suspension or interruption. 3. to last or endure. 4. to remain in a place; abide; stay. 5. to remain in a particular state or capacity It is not in contemplation to terminate the Fund. There is no intention to terminate or wind up the Fund. Therefore, the Fund is indefinitely continuing and satisfies this requirement. The fund is 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 1997 or the ITAA 1936. ATO Interpretative Decision ATO ID 2009/67 Income Tax: Superannuation fund for foreign residents (ATO ID 2009/67) provides guidance on the meaning of the phrase 'provident, benefit, superannuation or retirement fund':
None of the four descriptors 'provident', 'benefit', 'superannuation' or 'retirement fund' in subparagraph (a)(ii) of the definition of 'superannuation fund for foreign residents' in section 118-520 of the ITAA 1997 are defined. The terms have, however, been the subject of judicial consideration. 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).
Having regard to the terms of the deed of the Plan, it is considered that the Plan is a 'provident, benefit, superannuation or retirement fund' as that phrase has been interpreted by the relevant authorities. The sole purpose of the Plan is the provision of benefits to, or in respect of, participating employees who: • cease their employment upon or after reaching retirement age (age 60) • cease their employment after the satisfaction of certain service requirements • cease their employment because of death or total and permanent disability, or • reach age 70, whether or not they have ceased employment. Therefore, the Plan satisfies subparagraph (a)(ii) of the definition of 'superannuation fund for foreign residents' in section 118-520 of the ITAA 1997. The above commentary establishes that 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 allowable contemplated contingencies (such as death, disability, serious illness or other cessation of employment).
The Fund was established only to provide pension benefits to employees of the Corporate Group under the relevant plans. It was established as a trust to fulfill this purpose. The Fund accounts for the specific pension plan assets and the fees and expenses associated with each plan it funds on a unitary basis. The Fund's sole purpose is to provide retirement benefits to participants of plans which it funds. Other benefits that may be payable to participants are in circumstances of death, disability, or the cessation of employment with the Corporate Group. There is no other mechanism under which a plan participant can receive benefits while the participant remains an active employee of the Corporate Group. The Commissioner is satisfied that the Fund's sole purpose is to provide retirement benefits or benefits in other allowable contemplated contingencies. Therefore, the Fund satisfies this requirement. The fund was established in a foreign country The Fund was established in the Foreign Country. Therefore, the Fund satisfies this requirement. The fund was established and maintained only to provide benefits for individuals who are not Australian residents
The Fund generally provides benefits for individuals who are or were previously employed by the Corporate Group. While it is possible that Australian residents, having formerly worked in the Foreign Country for the Corporate Group, may obtain payment from the Fund, the fund was not established in order to provide benefits to Australian residents. 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: 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, paragraph 10 and 11 of the 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 Fund's central management and control is the responsibility of Management Company. Management Company and all of its authorised signatories are residents of the Foreign Country and make their decisions in the Foreign Country. There is no suggestion that the central management and control of the Fund resides in Australia. 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
No amount paid to or set aside for the Fund has been or can be deducted under the ITAA 1997. A tax offset has not been allowed nor would be allowable for any amount paid to or set aside for the Fund. Therefore, the Fund satisfies 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. Income that consists of interest, or consists of dividends or non-share dividends paid by a company that is a resident The relevant income derived by the Fund consists of dividends and interest paid from Australian companies. As such, the requirement under subparagraph 128B(3)(jb)(ii) of the ITAA 1936 will be met. Income that is exempt from income tax in the country in which the non-resident resides The Fund has provided a letter from the tax authority of the Foreign Country confirming that it is exempt from income tax in the Foreign Country. As such, the requirement under subparagraph 128B(3)(jb)(iii) of the ITAA 1936 will be met. Subsection 128B(3CA) of the ITAA 1936 The
Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 (TLA Act 2019) introduced extra requirements in subsection 128B(3CA) of the ITAA 1936 that must be met for paragraph 128B(3)(jb) of the ITAA 1936 to apply. Generally, these extra requirements apply to income derived from 1 July 2019. Subsection 128B(3CA) of the ITAA 1936 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 . These requirements are considered below. 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. The Test Entities are the entities listed in Appendix 1 of this Ruling.
The Fund holds substantially less than 10% of the total participation interests in each of the Test Entities and has never held more than a 10% participation interest. Further, the Fund would hold less than 10% of the total participation interests in each of the Test Entities in the circumstances detailed in paragraph 128B(3CC)(b) of the ITAA 1936. The Fund therefore satisfies the 'portfolio interest test' in respect of its current investments listed in Appendix 1 of this Ruling. The Fund satisfies the 'influence test' 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 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 superannuation 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 superannuation 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, assess 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 direction, instructions or wishes of the superannuation fund. In respect of the Australian Investments listed in Appendix 1 of this Ruling and in consideration of the factors outlined in Fact 14 of this Ruling: a) The Fund is not able to determine the identity of any 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, and b) There is no relevant decision-making person of the Test Entities who is accustomed or obliged to act, or might reasonably be expected to act, in accordance with the direction, instructions or wishes of the Fund. The Commissioner therefore accepts that the Fund does not have influence of a kind described in subsection 128B(3CD) of the ITAA 1936. Otherwise non-assessable non-exempt
The income received by the Fund from the Australian Investments listed in Appendix 1 of this Ruling 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 requirement. Conclusion Having regard to the requirements of paragraph 128B(3)(jb) of the ITAA 1936, the Fund is excluded from liability to withholding tax in relation to interest, dividend and non-share dividend income derived from its Australian investments listed in Appendix 1 of this Ruling.