International Tax

U.S. Taxation of International Shipping and Air Transport Activities (Portfolio 6740)

  • This Portfolio discusses the three tax regimes to which nonresident alien individuals and foreign corporations that conduct shipping or air transport activities within the United States may be subject.


The three tax regimes this Portfolio discusses are: (1) the general provisions of the Internal Revenue Code of 1986, as amended, for foreign persons with certain modifications; (2) a “reciprocal exemption” provided by §§872(b) and 883; or (3) the similar, but different, exemption available under many U.S. income tax treaties.

This Portfolio sets forth in detail the U.S. tax rules applicable under each of the three tax regimes, including in particular the requirements that must be satisfied to qualify for an exemption under either §§872(b) and 883 or an applicable U.S. income tax treaty. In this regard, particular emphasis is given to Treasury Regulations issued in 2003 that make it substantially more burdensome for foreign corporations to claim the reciprocal exemption provided by §§872(b) and 883.

This Portfolio also discusses the U.S. tax rules applicable to income earned by U.S. persons from international shipping and air transport activities. Of particular importance are provisions designed to prevent deferral of U.S. tax on such income through the use of controlled foreign corporations and limitations on the ability to use such income to utilize excess foreign tax credits.

In addition, the Portfolio discusses various excise taxes and September 11th Security Fees.

Table of Contents

I. Overview
II. Income Taxation — Inbound: Before the 1986 TRA
III. Income Taxation — Inbound: The 1986 TRA and Beyond
IV. Income Taxation — Inbound: A More Detailed Examination of the Reciprocal Exemption
V. Income Taxation — Inbound: Income Tax Treaties
VI. Income Taxation — Outbound
VII. Miscellaneous
Peter Glicklich
Managing Partner
Davies Ward Phillips & Vineberg LLP
Michael Miller
Roberts & Holland LLP
Join our Tax Regulatory Alerts for breaking news

By clicking submit, I agree to the privacy policy.