Rev. Rul. 74-92

The Internal Revenue Service has been requested to define the scope of activities that the Service deems to be included within the exemption contained in Article V of the United States-Federal Republic of Germany Income Tax Convention (Convention), TIAS 3133, 1955-1 C.B. 635, with respect to shipping companies using the container method of ocean transportation.

Article V of the Convention provides that profits derived by an enterprise of one of the contracting States from the operation of ships or aircraft shall be exempt from tax by the other State.

Under the authority granted by Article XIX(2) of the Convention the competent authority of the Internal Revenue Service and the German Federal Minister for Economic and Finance have agreed pursuant to an exchange of letters to interpret the phrase "operation of ships" as that phrase is used in Article V of the 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 under-carriage for transportation to the port of departure and on board the ship during the ocean transportation;

2. Transferring the containers from the under-carriage or from railway carriages on board the ship;

3. Transportation on board ship;

4. Unloading the containers on special under-carriage or railway carriages in the port of destination; 5. Providing the containers and special under-carriages 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 V of the Convention, provided that no special charge is imposed on the customer for the ancillary activities mentioned in items 1 and 5 above.

Accordingly, the United States will grant a reciprocal tax exemption to those German shipping enterprises covered under the Convention engaged in such ancillary activities.