Rev. Rul. 76-568

Advice has been requested whether the United States will grant a reciprocal tax exemption to those Netherlands shipping enterprises covered under article VI(1) of the United States-Netherlands Income Tax Convention (the Convention), T.D. 5778, 1950-1 C.B. 92 and the Supplementary Convention, 1967-2 C.B. 472, that do not impose a special charge on the customer for the ancillary activities described below.

Article VI(1) of the Convention and the Supplementary Convention provides, in part, that income that an enterprise of one of the Contracting States derives from the operation of ships or aircraft registered in that State shall be taxable only in the State in which such ships or aircraft are registered.

Under the authority granted by Article XXIV(3) of the Convention the Competent Authority of the Internal Revenue Service and the Netherlands Director-General for Fiscal Affairs have agreed pursuant to an exchange of letters to interpret the phrase "operation of ships" as that phrase is used in Article VI(1) of the Convention and the Supplementary Convention in the following manner:

In view of the fact that shipping companies are utilizing the "container" method of ocean transportation, certain ancillary activities connected with container transportation would be included within the provisions applicable to the operation of ships in international traffic.

The specific activities of the shipping company to be included are the following:

1. Providing the containers and special undercarriages for transportation to the port of departure and on board the ship during the ocean transportation;

2. Transferring the containers from the undercarriages or from railway carriages on board the ship;

3. Transportation on board the ship;

4. Unloading the containers on special undercarriages or railway carriages in the port of destination;

5. Providing the containers and special undercarriages for transportation from the port of destination to the customer.

Income from the above activities will be treated as income from the "operation of ships", as that term is used in Article VI(1) of the Convention and the Supplementary Convention, provided that no special charge is imposed on the customer for the ancillary activities mentioned in items 1 or 5 above.

Accordingly, the United States will grant a reciprocal tax exemption to those Netherlands shipping enterprises covered under the Convention and the Supplementary Convention that do not impose a special charge on the customer for ancillary activities described above