ARTICLE 9

Shipping and Air Transport

Paragraph (1) provides that, notwithstanding Article 8 (Business Profits), income derived by a resident of one Contracting State from the operation in international traffic of ships or aircraft, shall be exempt from tax by the other Contracting State. Gains from the sale, exchange, or other disposition of ships or aircraft are dealt within the general rule of paragraph (1) of Article 14 (Capital Gains).

Under paragraph (2), this Article applies to income derived from the rental of such ships or aircraft under a full or bareboat charter if the lessor is engaged in the operation of ships or aircraft in international traffic and the rental income is incidental to such operations of the lessor. For example, if an airline which is a resident of one Contracting State has excess equipment in the winter months and leases several of its aircraft which are not required by it during that period to an airline which is a resident of the other Contracting State, that rental income of the lessor is not subject to tax by the other Contracting State.

Paragraph (2) also makes clear that the Article applies to income derived by a resident of one Contracting State from the use, maintenance, and lease of containers, trailers for the inland transportation of containers and other related equipment in connection with the operation by the resident in international traffic of ships or aircraft described in paragraph (1).

Paragraph (2) makes explicit that income derived from the operation in international traffic of ships or aircraft means income derived directly from the operation of ships or aircraft and does not include dividends received by a shareholder in a corporation, where such

corporation operates ships or aircraft in international traffic.

This Article is subject to the saving clause of paragraph (3) of Article 6 (General Rules of Taxation). Therefore, a Contracting State may tax income from international traffic derived by a resident of the other Contracting State without regard to this Article if such resident is a citizen of the first-mentioned Contracting State.

Paragraph (3) provides that the limited existing exemption of U.S. air transport enterprises afforded by Decree to the Egyptian Council of Ministers of November 23, 1955 shall cease to have effect upon entry into force of this Convention.