• Service: Tax, Corporate Tax
  • Type: Regulatory update
  • Date: 27/02/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Tony Mulveney

Tony Mulveney
Partner, Tax

+61 2 9335 7121

Sovereign immunity exemption remains nebulous 

by Tony Mulveney, Corporate Tax Specialist

On 14 December 2013, the Assistant Treasurer issued a press release confirming an additional 48 unenacted tax measures would not proceed. One of the measures that would not proceed is the codification of the sovereign immunity exemption currently provided to foreign governments and their investment bodies in relation to passive Australian investment income. This announcement dates back to 2009 and a Proposal paper was issued in April 2011. The original intent was the codification would give greater clarity and certainty as to how the sovereign immunity rules should apply in the Australian context.

The announcement that the measure will not proceed does not preclude foreign governments and their investment bodies from continuing to claim sovereign immunity. That concession remains available but will continue to be applied in accordance with common law principles.


Examples of previous sovereign immunity rulings issued by the Tax Office can be seen on the Australian Taxation Office (ATO) website. These rulings provide some guidance as to how the principles apply but do not provide tax certainty in relation to future application of the rules to a particular taxpayer. Some of the key considerations concern the size of the investment in the underlying target and also whether the foreign government/investment body participates in the management of the target’s activities.


Sovereign immunity is an important tax concession where it is available. While the decision not to proceed with codification of the rules means there is a lack of certainty around the application of the principles and in any particular case, this uncertainty can be negated by obtaining a private binding tax ruling.


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