Panama – USA Transport Tax Agreement (1987)

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Transportation Tax Agreement (1987)

This Treaty was signed on December 30, 1987 and entered into force on December 30, 1987.

The American Embassy to the Ministry of Foreign Relations of Panama

No. 051

The Embassy of the United States of America presents its compliments to the Ministry of Foreign Relations of the Republic of Panama and has the honor to propose that the two Governments 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 Panama (other than U.S. citizens) and corporations organized in Panama. This exemption is granted on the basis of equivalent exemptions granted by Panama to citizens of the United States (who are not residents of Panama) and to corporations organized in the United States (which are not subject to tax by Panama 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 50 percent of the value of the corporation’s stock is owned, directly or indirectly, by individuals who are residents of Panama 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 Panama, or is wholly owned by a corporation whose stock is so traded and which is also organized in Panama.

For purposes of subparagraph (1), the Government of Panama will be treated as an individual resident of Panama. 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 Embassy of the United States of America considers that this Note, together with the Ministry’s reply note confirming that the Government of Panama agrees to these terms, constitutes an agreement amending the agreement of January 15, February 8, and March 28, 1941.1 This agreement shall enter into force on the date of the Ministry’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 Embassy of the United States of America takes this opportunity to renew to the Ministry of Foreign Relations of the Republic of Panama the assurances of its highest consideration.

Embassy of the United States of America,
Panama, July 30, 1987.

The Ministry of Foreign Relations of Panama to the American Embassy

Republic of Panama
Ministry of Foreign Relations
Panama 4, Panama
N.V. DGPE-EUC-No. 226/13

The Ministry of Foreign Relations of the Republic of Panama presents its compliments to the Embassy of the United States of America and has the honor to acknowledge receipt of its note No. 051 of July 30, 1987, proposing an agreement to exempt from income tax, on a reciprocal basis, income derived by residents of the other country for [sic] the international operation of ships and aircraft.

The proposed terms contained in the above-mentioned note are as follows:

[For text of the U.S. note, see pp. 2-3.]

The Ministry of Foreign Relations of the Republic of Panama is pleased to confirm that the Embassy note and this note of reply constitute an agreement amending the agreement of January 15, February 8, and March 28, 1941, which shall enter into force on today’s date and have effect with respect to taxable years beginning on or after January 1, 1987.

The Ministry of Foreign Relations of the Republic of Panama avails itself of this opportunity to renew to the Embassy of the United States of America the assurances of its highest consideration.

Panama, December 30, 1987 [Initialed]
[Ministry stamp]
Embassy of the United States, Panama City.