1.  For the purpose of this Article, the following definitions apply:

(a)   ‘international shipping income’ means net income obtained by a constituent entity from the following activities:

(i)    transportation of passengers or cargo by ship in international traffic, where such transportation is not carried out via inland waterways within the same jurisdiction, whether the ship is owned, leased or otherwise at the disposal of the constituent entity;

(ii)   leasing of a ship used for the transportation of passengers or cargo in international traffic on charter fully equipped, crewed and supplied;

(iii)  leasing of a ship used for the transportation of passengers or cargo in international traffic, on a bareboat charter basis, to another constituent entity;

(iv)  participation in a pool, a joint business or an international operating agency for the transportation of passengers or cargo by ship in international traffic; and

(v)   sale of a ship referred to in point (a) provided that the ship has been held for use by the constituent entity for a minimum of one year;

(b)   ‘qualified ancillary international shipping income’ means net income obtained by a constituent entity from the following activities, provided that such activities are performed primarily in connection with the transportation of passengers or cargo by ships in international traffic:

(i)    leasing of a ship, on a bareboat charter basis, to another shipping enterprise that is not a constituent entity, provided that the charter does not exceed three years;

(ii)   slot chartering arrangements;

(iii)  sale of tickets issued by other shipping enterprises for the domestic leg of an international voyage;

(iv)  leasing and short-term storage of containers or detention charges for the late return of containers;

(v)   provision of services to other shipping enterprises by engineers, maintenance staff, cargo handlers, catering staff, and customer services personnel; and

(vi)  investment income, where the investment that generates the income is made as an integral part of the carrying on the business of operating the ships in international traffic.

2.  The international shipping income and qualified ancillary international shipping income of a constituent entity shall be excluded from the computation of its qualifying income or loss, provided that the constituent entity demonstrates that the strategic or commercial management of all ships concerned is effectively carried on from within the jurisdiction where the constituent entity is located.

3.  Where the computation of a constituent entity’s international shipping income and qualified ancillary international shipping income results in a loss, such loss shall be excluded from the computation of the constituent entity’s qualifying income or loss.

4.  To the extent that the total qualified ancillary international shipping income of the constituent entities located in a jurisdiction exceeds 50% of their total international shipping income, the excess income shall be included in the computation of their qualifying income or loss.

5.  The costs incurred by a constituent entity that directly result from its international shipping activities and qualified ancillary international shipping activities referred to in paragraph 1 shall be allocated to such activities for the purpose of computing the net international shipping income and the net qualified ancillary international shipping income of the constituent entity.

The costs incurred by a constituent entity that indirectly result from its international shipping activities and qualified ancillary international shipping activities referred to in paragraph 1 shall be allocated to such activities for the purpose of computing the net international shipping income and the net qualified ancillary international shipping income of the constituent entity on the basis of its revenues from such activities in proportion to its total revenues.

6.  All direct and indirect costs incurred by a constituent entity that are allocated to its international shipping income or qualified ancillary international shipping income in accordance with paragraph 5 shall not be taken into consideration in the computation of its qualifying income or loss.

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