Shipping and air transport taxation: aircraft profits taxed only in home state; shipping profits subject to source-state tax with reduction.

Income from aircraft operations in international traffic is taxable only in the enterprise's Contracting State, while income from ship operations in international traffic may be taxed in the other Contracting State with the tax so imposed reduced by an amount equal to 50 per cent. "Operation of ships or aircraft" encompasses transportation of persons, mail, livestock or goods and includes incidental leasing, container use/maintenance/rental, and other activities directly connected with such transportation. Interest directly connected with these operations is treated as operational income, and the rules apply to pools, joint businesses and international operating agencies.

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