Guidance on “influence test” for super fund for foreign residents withholding tax and sovereign immunity exemptions

Law Companion Ruling LCR 2020/3 addresses Schs 3 and 4 to the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019, which limit the withholding tax exemption for superannuation funds for foreign residents and codify and limit the scope of the sovereign immunity tax exemption.

Previously, superannuation funds for foreign residents were not liable to withholding tax on interest or dividend income paid by an Australian company. One of the additional requirements introduced in Sch 3 and 4 to the Act to access the exemptions is described as an “influence test”. The requirement is that the superannuation fund for foreign residents must not, at the time the income was derived, have influence of a kind described in s 128B(3CD) of ITAA 1936 in relation to the payer of the interest or dividend. Similarly, to access the sovereign immunity exemption, the sovereign entity group must not have influence of a kind described in s 880-105(6) of ITAA 1997 in relation to the payer.

The ruling sets out guidance on the operation of the influence test, which contains 2 sub-tests around the identity of decision-makers and the influence the entity has on the decision-makers. It includes various examples illustrated for better understanding of the Commissioner’s view on these rules. The ruling also discusses key terms in the new sovereign immunity exemption rules in Div 880 of ITAA 1997.