Page 22: of Maritime Reporter Magazine (September 1997)

Foreign shipowners and opera- tors of vessels calling at U.S. ports can thank the U.S. cruise industry for successfully lobbying favorable changes to U.S. tax laws that oth- erwise would have affected them.

Section 1174 of the Taxpayer Relief

Act of 1997, signed by the

President on August 5th, defini- tively exempts the taxation of income earned by nonresident alien crewmen in connection with foreign vessels engaged in trans- portation between the U.S. and a foreign country. Foreign shipown- ing and operating corporations that have been subject to the filing requirements imposed by the 4 percent gross transportation income tax are all too familiar with the withholding voucher books that are automatically sent to all foreign corporations filing Form 1120F, irrespective of their tax- exempt status under an applicable tax-treaty.

In recent years, the IRS has published internal position papers justifying the taxation of alien crewmen aboard vessels and air- craft earning U.S.-source wages.

Last year, the IRS's stance and intention to enforce the withhold- ing requirement for wages earned by alien crewmen was solidified through the promulgation of regu- lations imposing the requirement on foreign employers.

Section 1174(a)(1) rectifies the inconsistency by amending section 861(a)(3) of the

Internal Revenue Code, which now reads in pertinent part that: ,..[C]ompensation for labor or services performed in the United

States shall not be deemed to be income from sources within the

United States if the labor or ser- vices are performed by a nonres- ident alien individual in connec- tion with the individual's tempo- rary presence in the United

States as a regular member of the crew of a foreign vessel engaged in transportation between the United States and a foreign country or possession of the United States.

The welcomed legislation bene- fits all foreign companies that have vessels trading to the U.S. and especially the cruise industry whose largest market is the U.S.

Because of the large number of employees working aboard cruise vessels, administration of the withholding tax would have resulted in high administrative costs.

Moreover, the withholding tax could have had further adverse ramifications in the event that withholding triggered an obliga- tion for foreign crewmen to file

U.S. income tax returns.

For more information on the preceding article, contact Arthur

Dimopoulos at Fort & Schlefer,

L.L.P., 1401 New York Ave., N.W.,

Washington, D.C. 20005, tel: (202) 467-5900; fax: (202) 783-6898.

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