Bahamas – USA Transport Tax Agreement (1986)

Transportation Tax Agreement (1987)

This Treaty was signed on July 16, 1987 and entered into force on July 16, 1987.

Agreement Between the UNITED STATES OF AMERICA and the BAHAMAS

The Department of State to the Bahamian Embassy

The Department of State acknowledges receipt of note No. 52/87, dated May 18, 1987, from the Embassy of the Commonwealth of The Bahamas regarding the reciprocal exemption from income tax of income derived from the international operation of ships and aircraft.

Through the above-mentioned note, the Government of Bahamas conveyed its favorable consideration of the Department of State’s December 5, 1986 proposal for an exchange of notes establishing a reciprocal exemption of shipping and aircraft income tax. The Department of State proposes to the Embassy of the Commonwealth of The Bahamas that the Government of the United States of America and the Government of the Commonwealth of The Bahamas now conclude an agreement to exempt from income tax, on a reciprocal basis, income derived by residents of the other country from the international operation of ships and aircraft. The terms of the agreement are as follows:

The Government of the United States of America, in accordance with sections 872(b) and 883(a) of the Internal Revenue Code, agrees to exempt from tax gross income derived from the international operation of ships or aircraft by individuals who are residents of the Commonwealth of The Bahamas (other than U.S. citizens) and corporations organized in the Commonwealth of The Bahamas. This exemption is granted on the basis of equivalent exemptions granted by the Government of the Commonwealth of The Bahamas to citizens of the United States (who are not residents of the Commonwealth of The Bahamas) and to corporations organized in the United States (which are not subject to tax by the Government of the Commonwealth of The Bahamas on the basis of residence).

In the case of a corporation, the exemption shall apply only if the corporation meets either of the following conditions:

(1) more than fifty percent of the value of the corporation’s stock is owned, directly or indirectly, by individuals who are residents of the Commonwealth of The Bahamas or of another country which grants a reciprocal exemption to U.S. citizens and corporations; or

(2) the corporation’s stock is primarily and regularly traded on an established securities market in the Commonwealth of The Bahamas, or is wholly owned by a corporation whose stock is so traded and which is also organized in the Commonwealth of The Bahamas. For purposes of the exemption from U.S. tax, subparagraph (1) will be considered to be satisfied if the corporation is a “controlled foreign corporation” under the Internal Revenue Code.

Gross income includes all income derived from the international operation of ships or aircraft, including income from the rental of ships or aircraft on a full (time or voyage) basis and income from the rental of containers and related equipment which is incidental to the international operation of ships or aircraft. It also includes income from the rental on a bareboat basis of ships and aircraft used for international transport.

The Department of State considers that this note, together with the Embassy’s reply note confirming that the Government of the Commonwealth of The Bahamas agrees to these terms, constitutes an agreement between the two Governments. This agreement shall enter into force on the date of the Embassy’s reply note and shall have effect with respect to taxable years beginning on or after January 1, 1987.

Either Government may terminate this agreement by giving written notice of termination through diplomatic channels.

The Department of State calls the Government of the Commonwealth of The Bahamas’ attention to a slight change between the above-proposed agreement and the agreement set out in the December 5, 1986 proposal. In the conditions necessary for the exemption to apply to a corporation, the ownership requirement concerning “fifty percent or more of the value of the corporation’s stock” has been changed to “more than fifty percent of the corporation’s stock.” This change is necessary to make the agreement conform to relevant U.S. legislation.

Department of State, Washington, June 26, 1987 The Bahamian Embassy to the Department of State 90/87

The Embassy of the Commonwealth of The Bahamas acknowledges receipt of a note dated 26 June, 1987 from the Department of State of the United States of America regarding the reciprocal exemption from income tax of income derived from the international operations of ships and aircraft.

The Embassy of the Commonwealth of The Bahamas wishes to advise that the Government of the Commonwealth of The Bahamas is in agreement with the terms set out in the Department’s Note under reference and confirms that this, reply Note constitutes an agreement between the two Governments establishing a reciprocal exemption of shipping and aircraft income tax. This agreement shall enter into effect on today’s date and shall have effect with respect to taxable years beginning on or after January 1, 1987.

The Embassy of the Commonwealth of The Bahamas avails itself of the opportunity to renew to the Department of State of the United States of America the assurances of its highest consideration.

EMBASSY OF THE COMMONWEALTH OF THE BAHAMAS Washington, D.C. 16 July, 1987