Tax Analysts provides news, analysis, and commentary on tax-related topics, including shipping and aircraft taxation. A number of jurisdictions worldwide have bilateral treaties concerning the taxation of shipping and aircraft activities in order to reduce tax uncertainty that might otherwise stem from trade-related activities. Shipping and air tax treaties generally exempt from tax certain income derived from the international operation of ships and aircraft.

In fact, some countries’ earliest tax treaties concerned solely taxation of shipping and air activities – Hong Kong, for example.  Bilateral agreements are often called air services agreements, shipping agreements, or shipping and air transport agreements. 

Section 883 of the Internal Revenue Code provides an exemption from U.S. taxation for income derived by a foreign corporation from the international operation of ships or aircraft if the country in which the corporation is organized grants an equivalent exemption to U.S. corporations, subject to certain exceptions. This is a so-called “equivalent exemption” provision. 

Section 872(b)(1) and (2) of the Code provide a equivalent exemptions for nonresident alien individuals operating ships or aircraft. 

Rev. Rul. 2008-17, 2008-12 IRB 626, modified by Announcement 2008-57, 2008-26 IRB 1192, was issued in March 2008 to help foreign corporations engaged in international operation of ships or aircraft and their shareholders to determine whether a foreign corporation is organized in a country that grants an equivalent exemption under section 883(a).  It was also intended to help nonresident aliens engaged in such operations to determine whether a country grants the exemption under section 872(b).