The Government of the Kingdom of Saudi Arabia and the Government of the United States of America, hereinafter "the Contracting Parties", desiring to conclude an agreement for reciprocal exemption with respect to taxes levied on income from the international operation of a ship or ships or aircraft, Have agreed as follows:

Article 1

TAXES COVERED

•  This Agreement shall apply to all taxes on income derived from the international operation of a ship or ships or aircraft imposed by each Contracting Party irrespective of the manner in which such taxes are levied.

•  There shall be regarded as taxes on income derived from the international operation of a ship or ships or aircraft all taxes imposed on the total of such income or imposed on elements of such income.

•  The taxes to which this Agreement shall apply are:

•  In the case of the Kingdom of Saudi Arabia, any Saudi tax described in paragraphs 1 and 2 (hereinafter referred to as "Saudi tax"); and

•  In the case of the United States, Federal income taxes described in paragraphs 1 and 2 imposed by the U.S. Internal Revenue Code, including the tax on gross income imposed by section 887 and, as provided in section 884(d)(2), the branch profits tax (hereinafter referred to as "United States tax").

Article II

DEFINITIONS

•  In this Agreement, unless the context otherwise requires:

•  The terms "a Contracting party" and "the other Contracting party" mean the Government of the Kingdom of Saudi Arabia or the Government of the United States of America, as the context requires;

•  The term "tax" means "Saudi tax" or "United States tax", as the context requires;

•  The term "operation of a ship or ships or aircraft" means the transportation by sea or air, as the context requires, of persons, baggage, livestock, goods, merchandise or mail, including the sale of tickets and similar documents used for the purpose of such transport, and other directly related activities, carried on by the owner, lessor, or charter of a ship or aircraft;

•  The term "international operation" or "international transport" means operation as defined in paragraph (c), except where the operation of the ship or ships or aircraft is solely between places in a Contracting Party;

•  The term "income derived from the international operation of a ship or ships or aircraft" includes:

•  Income derived from the rental on a (full time or voyage) basis of a ship or ships or aircraft used in international transport;

•  Income derived from the rental on a bareboat basis of a ship or ships or aircraft used in international transport;

•  Income derived from the rental of containers and related equipment used in international transport that is incidental to income from the international operation of a ship or ships or aircraft;

•  Gains from the sale or other alienation of a ship or ships or aircraft used in international transport;

•  Income derived from the international operation of a ship or ships, or aircraft by an individual resident of a Contracting Party, or a corporation organized in a Contracting Party, engaged in the international operation of a ship or ships or aircraft from its participation in a pool, an alliance, joint businesses, international operating agency, or other venture that is itself engaged in the international, operation of a ship or ships or aircraft;

•  For Saudi tax purposes, open taxable years are taxable years for which taxes have not been paid for any reason. For U.S. tax purposes, open taxable years are taxable years for which the statute of limitations is not closed.

•  The term "competent authority" means:

•  In the case of Saudi Arabia, the Ministry of Finance & National Economy; and

•  In the case of the United States, the Secretary of the Treasury or his delegate.

•  In the application of the provisions of this Agreement by a Contracting Party any term not otherwise defined shall, unless the context otherwise requires, have the meaning which it has at that time under the laws of the Contracting Party relating to the taxes which are the subject of this Agreement.

Article III

SHIPPING AND AIR TRANSPORT

1. Income derived from the international operation of a ship or ships or aircraft by a corporation organized in a Contracting Party and engaged in the international operation of a ship or ships or aircraft shall be exempt from tax by the other Contracting Party.
2. In order for a corporation organized in a Contracting Party to claim benefits under this agreement, it must satisfy any ownership or public trading requirements, as well as any filing requirements, of the other Contracting Party.

•  Corporations of a Contracting Party engaged in the international operation of aircraft include those airlines designated under the Air Transport Agreement between the Contracting Parties or whose flights are otherwise authorized by the civil aviation authority of the receiving Contracting Party.

Article IV

CONULTATION, SETTLEMENT OF DISPUTES AND AMENDMENT PROCEDURE

•  Consultation may be requested in writing at any time by either Contracting Party. Such consultation shall commence within sixty (60) days of the date of such written request.

•  The competent authorities of the Contracting Parties shall endeavor to resolve by mutual agreement any dispute regarding the interpretation or application of the Agreement and shall not refer any such dispute to any international tribunal or third party for settlement.

•  This Agreement may be amended by written agreement of the Contracting Parties.

Article V

ENTRY INTO FORCE

•  The Contracting Parties shall notify each other in writing through diplomatic channels when their respective legal procedures for entry into force have been met with respect to this Agreement.

•  The Agreement shall enter into force as of the date of the latter of the notifications required pursuant to paragraph 1 of this Article V and the provisions of this Agreement shall have effect with respect to all taxable years beginning on or after January 1, 1999, and to all prior open taxable years.

Article VI

TERMINATION

This Agreement may be terminated by either Contracting Party giving written notice of termination through diplomatic channels or as a consequence of a legislative act by a Contracting Party. In the case of termination by written notice through diplomatic channels, the Agreement shall cease to have effect for taxable periods beginning on or after 1 January of the calendar year next following the date on which notice of termination was given. If this Agreement is terminated as a consequence of any legislative act, the Contracting Party concerned shall give as much notice of termination as feasible and such termination shall take effect as determined by such legislative act.

IN WITNESS WHEREOF, the undersigned being duly authorized by their respective Governments, have signed the present Agreement.

DONE at Riyadh this third day of Ramadan, one thousand four hundred and twenty, corresponding to the eleventh day of December one thousand nine hundred and ninety-nine, in the Arabic and English languages.

A Royal Decree, issued under number M/21, dated 24/10/1420 H., has rectified the agreement between the Government of the Kingdom of Saudi Arabia and the Government of the United States of America for reciprocal exemption with respect to taxes levied on income from the international operation of a ship or ships or aircraft, done at Riyadh on the third day of Ramadan, one thousand four hundred and twenty corresponding to the eleventh day of December one thousand nine hundred and ninety-nine.