This is the fifth in a series of articles on the US taxation of shipping income, and begins the explanation of USSGTI obligations.
Next week, we will discuss exemptions from the tax available pursuant to Section 883. Future articles will cover the “look through” rule and what must be done to comply with the filing requirements associated with these exemptions.
An earlier article in this series explained how the Tax Reform Act of 1986 (“TRA86”) substantially altered the US taxation of international shipping income. It changed the “source” rules for international shipping income, (1) deeming 50% of such income to be “US source”; (2) imposing a 4% tax on that income; and (3) creating an exemption regime that permits foreign corporations that meet certain criteria to claim exemption from tax.
TRA86 created a US tax filing obligation for every foreign corporation that has US source gross transportation income (“USSGTI”) in any tax year. Thus, any foreign corporation that received USSGTI income during 2011 must file a US tax return on Form 1120-F by 15 June 2012, even if the corporation qualifies for exemption from the tax. There are no exceptions to this rule.
Companies earn USSGTI when they receive any form of income (bareboat, time, or voyage hire, i.e., freight) for the use of a vessel that transports cargo to or from the United States. The only parties not subject to the US tax are those who pay the ultimate freight bill.
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