Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

income tax conventions with the United States that supersede prior income tax conventions reported in Rev. Rul. 89–42; Finland, France, Germany, Kazakhstan, and the Netherlands. The Income tax conventions between the United States and the Netherlands, as extended to the Netherlands Antilles and Aruba, and between the United States and Malta have been terminated, in relevant part, effective January 1, 1988, and January 1, 1997, respectively, and have been deleted from the list.

In Part II, new diplomatic notes have been exchanged with Chile, Hong Kong, India, Isle of Man, Japan, Luxembourg, Malaysia, Malta, Marshall Islands, Norway, Pakistan, Peru, and St. Vincent and the Grenadines. After the publication of Rev. Rul. 89–42, Mexico entered into a diplomatic note with the United States effective retroactively to January 1, 1 1987. This note, however, terminated on January 1, 1994, the general effective date of the new U.S. — Mexico Income Tax Convention. In addition, the Russian Federation entered into a diplomatic note effective retroactivity to January 1, 1991.2 This note also terminated on January 1, 1994, the general effective date of the New U.S. — Russian Federation Income Tax Convention. Although a diplomatic not was signed with Boliva, that note has never entered into force. Therefore Boliva has been removed from the list.

In Part III, Antigua and Barbuda, Barbados, Ecuador (shipping only), Israel, Qata (aircraft only), Turks and Caicos, and the U.S. Virgin Islands have been added to the list of countries whose domestic law has been determined to provide an equivalent exemption.

Consistent with past practice, the Service will entertain a request from a foreign government to make a determination that the domestic law of the country provides an equivalent exemption. However, the Service will not accept requests from individual taxpayers; instead, taxpayers should seek to have the relevant foreign government request a determination that the particular country qualifies as an equivalent exemption jurisdiction.

1This note is published at 1990–2 C.B. 322. 2This note is published at 1996–36 I.R.B. 6.

Section 872. — Gross Income (Also Section 883; 1.883–1; 894.)

International operation of ships and aircraft; income exempt from tax. Those countries that currently provide exemptions from tax to U.S. persons for income from the internaitonal operation of ships and aircraft through income tax conventions, diplomatic notes, or the country’s domestic law are listed. Rev. Rul. 89–42 supplemented.

Rev. Rul. 97–31

PURPOSE

The purpose of this revenue ruling is to supplement Rev. Rul. 89–42, 1989–1 C.B. 234, by providing a current list of countries that grant United States persons equivalent exemptions from tax for income from the international operation of ships and aircraft for purposes of section 872(b) of the Internal Revenue Code, section 883 of the Code, and the shipping and air transport articles in United States income tax conventins.

A foreign country may grant an equivalent exemption from tax through an income tax convention or exchange of diplomatic notes, by not imposing a tax, or by a decree or specific statutory exemption if a tax is generally imposed. The following Table includes a current list of such countries and summarizes the types of income that qualify for examption.

Part I of the Table summarizes equivalent exemptions under shipping and aircraft articles and capital gains articles of income tax conventions to which the United States is a party. Part I includes a summary of the requirements for the exemption, such as whether the exemption is based solely on residence or has an additional requirement of documentation or registration. Part I generally does not set forth other benefities that may be provided under articles covering business profits, rentals and royalties, and other income.

Part II of the Table summarizes exemptions available in countries that have exchanged diplomatic notes with the United States that cover shipping and aircraft income.

Finally, Part III of the Table provides a list of the countries for which the Service has determined, upon examination of

their laws, that an equivalent exemption is granted by statute or decree, or by not imposing a tax on such income.

This determination is made on a country by country basis and relies upon information submitted to the Internal Revenue Service by the foreign country regarding the foreign law in effect at the time of the submission. The date of the Service’s review is reflected in the first column of Part III of the Table. Since its initial review, the Service has not attempted to determine whether any of the foreign laws of the countreis listed in Part III have been amended or repealed. Therefore, taxpayers should independently verify the accuracy of the information in Part III of the Table at such time that a determination is relevant.

In addition, this list does not represent an exclusive list of countries whose domestic law provides an equivalent exemption. Other countries that have not submitted the information necessary for the Service to make a determination also may grant an exemption. In those cases, a corporation organized in, or an individual resident of, such a soreign country may qualify for an exemption even though the Internal Revenue Service has not yet made a determination to include the country in Part III of the Table.

The Table is intended only as a summary. The full text of any relevant income tax convention, diplomatic note, or foreign law should be consulted. It may be necessary to consult the technical explanation of an income tax convention, a protocol, or a diplomatic note accompanying a convention to determine the items of income exempted. Income tax conventions and diplomatic notes are published in the Cumulative Bulletin. The Table will be updated periodically.

CHANGES TO REV. RUL. 89–42

The changes to the Table published in Rev. Rul. 89–42 are summarized as follows. In Part I, the following countries have been added to the list of countries that provide an exemption under an income tax convention: Czech Republic, India, Indonesia, Israel, Mexico, Portugal, the Russian Federation, the Slovak Republic, Spain, Sweden, and Tunisia. The following countries have entered into new

August 11, 1997 4 1997–32 I.R.B.

Taxpayers claiming an exemption under the terms of an income tax convention, or under section 872(b) or section 883 of the Code, must file a return on Form 1040NR (U.S. Nonresident Alien Income Tax Return) or Form 1120F (U.S. Income Tax Return of a Foreign Corpora tion) and comply with the provisions of section 8 of Rev. Proc. 91–12, 1991–1 C.B. 473.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 89–42 is supplemented.

DRAFTING INFORMATION

The principal author of this revneue ruling is Patricia C. Bray of the Office of Associate Chief Counsel (International). For information regarding this revneuw ruling contact Ms. Bray on (202) 622–3880 (not a toll-free call).

Countries Currently Granting Equivalent Exemptions for Income From the International Operation of Ships and Aircraft

Basis for Exemption TYPES OF SHIPPING AND AIRCRAFT INCOME EXEMPTED 2

Resi- Resi- Resi- Full dence dence dence Rental Countries Based & Flag & Flag Opera- (Time or Bare- Conand No Reci- Uni- ting voyage Boat tainer Capital Territories Flag procal lateral Income charter) Rental Rental Gains

1