Taxation of sovereign wealth funds - A suggested approach

Sovereign wealth funds (SWFs) are used for large-scale offshore investment of government funds. In accordance with the sovereign immunity doctrine, a SWF is generally immune from the jurisdiction of another sovereign State - including tax laws. There has been little research on the application of tax to SWFs. Yet it is an issue of vital importance to Australia and to its international competitiveness and security. In 2009, the Australian Government announced its intention to codify its practices in dealing with SWFs and an Options Paper was released in 2011. This article reviews the practices adopted by Australia and selected countries in relation to taxing SWFs. It considers best practice principles, which Australia should adopt in developing policy for taxing these foreign investment vehicles. Australia s current taxation regime and the model proposed in 2011, are discussed, and a model suggested for Australia.