Is the Fund, on behalf of the Plans, excluded from liability to withholding tax on interest, dividend and non-share dividend income derived from its Australian investments in accordance with paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Yes. This ruling applies for the following periods: XX Month XXXX to XX Month XXXX The scheme commenced on: XX Month XXXX
Background The Fund was established in a Foreign Country via Trust Agreement between the Company and Trustee. The Company is a publicly traded company. The Company is a resident of a Foreign Country. The Company appoints the Trustee as trustee with respect to the Plans. Each of the Plans were established and regulated pursuant to an Act of the Foreign Country's Parliament. The Plans were established in a Foreign Country and are residents of a Foreign Country for tax purposes. The Fund and the Plans are each exempt from tax under an Act of the Foreign Country. The Plans are 'registered pension plans' under an Act of the Foreign Country. The Plan's central management and control is in a Foreign Country and is carried out by persons who are not Australian residents. The Plans have been established and maintained only to provide benefits for individuals who are not Australian residents. Each of the Plans apply to certain employees of the Company, including full-time and part-time employees in the Foreign Country. The Company is the sponsor of the Plans and makes contributions to the Plans.
The Trustee provides all administration services to pay benefits from the applicable Plan to its members. Eligibility Eligibility to benefits under the Plans is based on members age and their years of continuous service or earnings with the Company. Members are eligible for a pension at the normal retirement age, which is 65 years of age. A member is eligible for early retirement at the age of 55. A Plan member may be eligible for special early retirement. A Plan member may be eligible for unreduced early retirement. A member is eligible for postponed retirement where they continue to work after the age of 65. Benefits Several different forms of pension payments are available for members of the Plans which include the following: a. death benefits b. lump sum options c. survivor pensions d. spouse benefits and e. termination options. The Fund The head office for the Fund is located in a Foreign Country. Assets The Fund, on behalf of the Plans, directly owns the Australian investments. The Trustee The powers of the Trustee in respect of the Fund on behalf of the Plans are set out in the Trust Agreement.
The Trust Agreement outlines the obligations of the Trustee in respect of investments on behalf of the Plans. Distributions The Trustee and custodian are authorised and directed by the Company to collect income payable to and distributions due to the Fund on behalf of the Plans. The Trustee and custodian are authorised and directed by the Company to distribute benefits to the members of each of the Plans. Termination A mechanism exists that allows for the Plans to be wound up. For a Plan to be wound up approval and satisfaction of the applicable regulatory requirements is necessary. The Australian investments held by the Fund on behalf of the Plans The income derived by the Fund on behalf of the Plans from the Australian investments are expected to include dividends. The Australian investments held by the Fund on behalf of the Plans has the following characteristics: a. All securities are listed on the Australian Securities Exchange (ASX) or another recognised stock exchange. b. The Fund holds less than 10% of the total participation interests on issue in the Australian company.
c. The Fund has no involvement in the day to day management of the Australian company. d. The Fund has no right to representation on the board of directors, or any investor representative or advisory committee (or similar) of the Australian company. e. The Fund has no right to representation on any investor representative or advisory committee (or similar) of the Australian company. f. The Fund has no ability to direct or influence the operation of the Australian company or trust outside of the ordinary rights conferred by the equity interest held. g. The Fund only holds rights to vote in proportion to its equity interest in each Australian company.
Income Tax Assessment Act 1936 paragraph 128B(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) as well as other income prescribed in that section. Broadly, paragraph 128B(3)(jb) of the ITAA 1936 provides an exclusion from withholding tax for interest, dividends and non-share dividends derived by a superannuation fund for foreign residents (subject to the satisfaction of certain conditions). For the exclusion to apply, the interest, dividend and / or non-share dividend income must be: • derived by a non-resident that is a superannuation fund for foreign residents (as defined in section 118-520 of the Income Tax Assessment Act 1997 (ITAA 1997)), and • exempt from income tax in the country in which the superannuation fund for foreign residents arise. Further from 1 July 2019, the extra requirements in subsection 128B(3CA) of the ITAA 1936 must also be met. The Fund is a non-resident The Fund and the Plans were established in Foreign Country.
Therefore, the Fund and the Plans were established in a foreign country and this requirement is satisfied. The Fund is a superannuation fund for foreign residents The term 'superannuation fund for foreign residents' is defined in section 118-520 of the ITAA 1997 as follows: Meaning of superannuation fund for foreign residents (1) A fund is a superannuation fund for foreign residents at a time if: (a) at the 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 deducted under this Act; or (b) a tax offset has been allowed or is allowable for such an amount.
The Plans are registered pension plans created under Acts of Parliament in the Foreign Country, and they can be discontinued when certain requirements are met, and approval is given by the applicable regulator. The Fund is responsible for managing the assets of the Plans, for the sole purpose of providing retirement benefits or benefits in alignment with other contemplated contingencies via the Plans. 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. Therefore, it is accepted that the Fund and the Plans are indefinitely continuing, and this requirement is satisfied. 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. 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 '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).
The above 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 contemplated contingencies (such as death, disability or serious illness). The Fund is responsible for managing the assets of the Plans. The Plans are pension plans that apply to certain employees of the Company, which include full-time and part-time employees in the Foreign Country. The circumstances in which a member of each of the Plans can ordinarily receive funds from the Fund on behalf of the Plans upon retirement from employment are consistent with those of a provident, benefit, superannuation or retirement fund. Further, the alternative circumstances of access available to Plan members and their beneficiaries, which include survivor pensions, disability pensions, and spouse benefits, are considered to align with the contemplated contingencies of a 'provident, benefit, superannuation or retirement fund' as outlined in the ATO ID 2009/67.
As both the objective and the actual operation of the Fund on behalf of the Plans have the sole purpose of providing retirement benefits or benefits in alignment with other contemplated contingencies via the Plans, the Fund on behalf of the Plans is considered to be a provident, benefit, superannuation or retirement fund. Therefore, the Fund on behalf of the Plans satisfies this requirement. Established in a foreign country The Fund and the Plans were established in a Foreign Country. Therefore, this requirement is satisfied. Was established and maintained only to provide benefits for individuals who are not Australian residents The Fund on behalf of the Plans was established in a Foreign Country and is maintained to provide benefits to the members and beneficiaries of the Plans, who are or were employees of the Company, all of whom are not Australian residents. Therefore, this requirement is satisfied. 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. The central management and control of the Plans is in a Foreign Country. The Fund's head office is located in a Foreign Country and the Fund holds its Board meetings outside of Australia. In addition, the Fund's central management and control which include the high level and strategic decision making processes outlined in paragraphs 20 and 21 of the TR 2008/9, 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 on behalf of the Plans occurs outside of Australia by entities that are not Australian residents. Therefore, this requirement is satisfied. Does not receive, or have amounts set aside for it, that have been or can be deducted under the ITAA 1936 or ITAA 1997 No amounts have been paid to the Fund or have been set aside to be paid to the Fund, in connection with the Plans, that have or can be deducted under the ITAA 1936 or ITAA 1997. Therefore, this requirement is satisfied. Does not receive, or have amounts set aside for it, that give rise to a tax offset. No amounts that have been paid to the Fund, or set aside to be paid to the Fund, in connection with the Plans, that are amounts for which a tax offset has been allowed, or would be allowable, under the ITAA 1936 or the ITAA 1997. Therefore, this requirement is satisfied. Conclusion As all of the above requirements are satisfied, the Fund and the Plans meet the requirements of being a 'superannuation fund for foreign residents' as defined by section 118-520 of the ITAA 1997.
Receives income that consists of interest, or consists of dividends or non-share dividends paid by a company that is an Australian resident In order to be excluded from withholding tax under paragraph 128B(3)(jb) of the ITAA 1936, the interest, dividend and/or non-share dividend income must be derived by a non-resident superannuation fund for foreign residents. The Fund on behalf of the Plans is the legal and beneficial owner of the Australian investments and it derives income in the form of dividends from the Australian investments. Therefore, this requirement is satisfied. Is exempt from income tax in the country in which it resides The Fund and the Plans is exempt from tax in the country in which they reside. Therefore, this requirement is satisfied. Subsection 128(3CA) of the ITAA 1936 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) of the ITAA 1936 must also be met. Relevantly:
i. the Fund on behalf of the Plans must satisfy the 'portfolio interest test' in relation to the entity (subsection 128B(3CC) of the ITAA 1936) ii. the Fund on behalf of the Plans must satisfy the 'influence test' (subsection 128B(3CD) of the ITAA 1936) in relation to the entities, and iii. the income derived by the Fund on behalf of the Plans cannot otherwise be non-assessable non-exempt (NANE) income because of: a. Subdivision 880-C of the ITAA 1997, or b. Division 880 of the Income Tax (Transitional Provisions) Act 1997 . i. The Fund satisfies the 'portfolio interest test' in relation to the entities Subsection 128B(3CC) of the ITAA 1936 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. The Fund on behalf of the Plans satisfies the 'portfolio interest test' in respect of its Australian investments. ii. The Fund satisfies the 'influence test' in relation to the entities Subsection 128B(3CD) of the ITAA 1936 states: (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) of the ITAA 1936, 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 the test entity. 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 the test entity.
Sub-test 2 of the influence test, as contained in paragraph 128B(3CD)(b) of the ITAA 1936, assesses whether at least one of the relevant decision-making persons of the test entity is accustomed or obliged to act, or might reasonably be expected to act, in accordance with the directions, instructions or wishes of the Fund. The following are relevant in determining whether the Fund on behalf of the Plans satisfies the 'influence test' in respect of its Australian investments: • The investment is listed on the ASX. • Neither the Fund, nor any related party, has direct or indirect involvement in the day-to-day management of the business of the Australian company. • Neither the Fund, nor any related party, has direct or indirect right to appoint a director to the Board of Directors, or any investor representative or advisory committee (or similar) of the Australian company. • Neither the Fund, nor any related party has direct or indirect ability to direct or influence the operation of the entities outside the ordinary rights conferred by the interest held.
• Neither the Fund, nor any related parties, interests provide it with an entitlement to either directly or indirectly determine the identity of any person who makes decisions that comprise the control and direction of the entities' operations, and • No person involved in the control and direction of the entities' operations is accustomed or obliged to act in accordance with the direct or indirect directions, instructions or wishes of the Fund. • The Fund only holds rights to vote in proportion to its equity interest in each Australian company, trust, or Australian debt issuer. Based on the above, it is reasonable to conclude that the Fund on behalf of the Plans does not have influence over the Australian investments of the kind described in subsection 128B(3CD) of the ITAA 1936. Therefore, this requirement is satisfied. iii. the income derived by the Fund cannot otherwise be non-assessable none-exempt (NANE) income. The income derived by the Fund on behalf of the Plans is not NANE income because of Subdivision 880-C of the ITAA 1997. Therefore, this requirement is satisfied. Conclusion
The Fund, on behalf of the Plans, is excluded from withholding tax in relation to interest, dividend and non-share dividend income derived from its Australian investments.