ARTICLE 9

Shipping and Air Transport

Paragraph (1) provides that, notwithstanding Article 8 (Business Profits) and Article 15 (Capital Gains), income derived by a resident of one Contracting State from the operation in international traffic of ships or aircraft, and gains derived from the sale, exchange or other disposition of such ships or aircraft, shall be exempt from tax by the other Contracting State. It should be noted that income derived by a resident of Israel would be exempt from tax by the United states even though the vessel with respect to which the income is earned is registered in a State which would not qualify for the reciprocal exemption of Code sections 872(b) and 883(a).

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 that 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 a resident in international traffic of ships or aircraft described in paragraph (1).

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.