Hong Kong Regulations

DOUBLE TAXATION RELIEF (INCOME FROM SHIPPING OPERATIONS) (UNITED STATES OF AMERICA) ORDER - SCHEDULE SCHEDULE

[paragraph 2]

AGREEMENT CONSTITUTED BY EXCHANGE OF NOTES BETWEEN THE GOVERNMENT OF THE
UNITED STATES OF AMERICA AND THE GOVERNMENT OF HONG KONG FOR DOUBLE TAXATION
RELIEF IN RESPECT OF INCOME FROM INTERNATIONAL OPERATION OF SHIPS

EXCHANGE OF NOTES

No. 1

CONSUL GENERAL OF THE UNITED STATES OF AMERICA

TO

HONG KONG COMMISSIONER OF INLAND REVENUE

Consulate General of the United States of America Hong Kong August 1, 1989
Sir:

On behalf of the Government of the United States of America, I have the honor
to propose that the Government of the United States of America and the
Government of Hong Kong conclude an agreement to exempt from income tax (which
term for the purposes of the agreement in the case of Hong Kong refers to
profits tax), on a reciprocal basis, income derived by residents of the other
from the international operation of ships (which term for the purposes of the
agreement shall not include aircraft). I further have the honor to inform you
that the Government of the United States of America is prepared to conclude an
agreement in the following terms:

1. The Government of the United States of America, in accordance with
Sections 872(b) and 883(a) of the Internal Revenue Code, agrees to exempt from
tax gross income derived from the international operation of ships by
individuals who are residents of Hong Kong (other than U.S. citizens) and
corporations which are incorporated in Hong Kong or controlled or managed in
Hong Kong (other than corporations organized in the United States).

2. In the case of a corporation, the exemption granted by the Government of
the United States of America shall apply only if the corporation meets either
of the following conditions:

   (a)  the corporation's stock is primarily and regularly traded on an
        established securities market in Hong Kong, another country which
        grants an equivalent exemption to U.S. corporations, or the United
        States; or

   (b)  more than 50 percent of the value of the corporation's stock is owned,
        directly or indirectly, by individuals who are residents of Hong Kong
        or of a country which grants an equivalent exemption to U.S.
        corporations, or by a corporation organized in a country which grants
        an equivalent exemption to U.S. corporations and whose stock is
        primarily and regularly traded on an established securities market in
        that country, another country which grants an equivalent exemption to
        U.S. corporations, or the United States. For the purposes of
        sub-paragraph (b), the Government of Hong Kong shall be treated as an
        individual resident of Hong Kong, and stock of a corporation owned by
        another corporation, partnership, trust or estate shall be treated as
        owned proportionately by the beneficial owners.

3. For the purposes of applying the 50 percent test to a Hong Kong
corporation, if the corporation is a U.S. controlled foreign corporation as
defined in Section 957(a) of the United States Internal Revenue Code, the U.S.
shareholders are treated as residents of Hong Kong.

4. The Government of Hong Kong agrees to exempt from tax gross income derived
from the international operation of ships by U.S. residents and corporations
organized in the United States (other than corporations which are subject to
tax by Hong Kong on the basis of residence).

5. In the case of a corporation, the exemption granted by the Government of
Hong Kong shall apply only if the corporation meets either of the following
conditions:

   (a)  the corporation's stock is primarily and regularly traded on an
        established securities market in the United States, another country
        which grants an equivalent exemption to Hong Kong corporations, or
        Hong Kong; or

   (b)  more than 50 percent of the value of the corporation's stock is owned,
        directly or indirectly by individuals who are residents of the United
        States or of another country which grants an equivalent exemption to
        Hong Kong's corporations, or by a corporation organized in a country
        which grants an equivalent exemption to Hong Kong corporations and
        whose stock is primarily and regularly traded on an established
        securities market in that country, another country which grants an
        equivalent exemption to Hong Kong corporations, or Hong Kong. For the
        purposes of sub-paragraph (b), the Government of the United States of
        America shall be treated as an individual resident of the United
        States of America.

6. Gross income for the purposes of this agreement includes all income derived
from the international operation of ships, including:

   (a)  income from the rental of ships used in international transport on a
        full (time or voyage) or bareboat basis;

   (b)  income from the rental of containers and related equipment used in
        international transport which is incidental to income from the
        international operation of ships;

   (c)  income from the participation in marine transport pools which engage
        in international operation of ships; and

   (d)  gains from the sale, disposal or other alienation of ships by a person
        primarily engaged in the international operation, lease or rental of
        ships.

7. If any difficulty or doubt as to the interpretation or application of this
agreement should arise, the competent authorities of the two Governments shall
seek to resolve such difficult or doubt by mutual agreement. For this purpose,
the competent authorities are:

   (a)  in the United States, the Secretary of the Treasury or his authorized
        representative; or any person or body authorized to perform any or
        similar functions at present exercisable by the above-mentioned
        office-bearer; and

   (b)  in Hong Kong, the Financial Secretary or his authorized
        representative; or any person or body authorized to perform any or
        similar functions at present exercisable by the above-mentioned
        office-bearer.

8. Either Government may terminate this agreement by giving written notice of
termination.

If the foregoing is acceptable to the Government of Hong Kong, I have the
honor to propose that this note, together with your reply in that sense, shall
constitute an agreement between the Government of the United States of America
and the Government of Hong Kong which shall enter into force on the date of
your reply and shall have effect with respect to taxable years on or after 1
January 1987.

I avail myself of this opportunity to renew to you, Sir, the assurance of my
highest consideration.

Donald M. ANDERSON Mr. Anthony AU-YEUNG, J.P. Commissioner of Inland Revenue
Hong Kong

No. 2

HONG KONG COMMISSIONER OF INLAND REVENUE

TO

CONSUL GENERAL OF THE UNITED STATES OF AMERICA

Commissioner of Inland Revenue Hong Kong 16 August 1989

Sir:

On behalf of the Government of Hong Kong, I have the honour to acknowledge
receipt of your note of 1 August 1989 which reads as follows:

"On behalf of the Government of the United States of America, I have the honor
of propose that the Government of the United States of America and the
Government of Hong Kong conclude an agreement to exempt from income tax (which
term for the purposes of the agreement in the case of Hong Kong refers to
profits tax), on a reciprocal basis, income derived by residents of the other
from the international operation of ships (which term for the purposes of the
agreement shall not include aircraft). I further have the honor to inform you
that the Government of the United States of America is prepared to conclude an
agreement in the following terms:

1. The Government of the United States of America, in accordance with
Sections 872(b) and 883(a) of the Internal Revenue Code, agrees to exempt from
tax gross income derived from the international operation of ships by
individuals who are residents of Hong Kong (other than U.S. citizens) and
corporations which are incorporated in Hong Kong or controlled or managed in
Hong Kong (other than corporations organized in the United States).

2. In the case of a corporation, the exemption granted by the Government of
the United States of America shall apply only if the corporation meets either
of the following conditions:

   (a)  the corporation's stock is primarily and regularly traded on an
        established securities market in Hong Kong, another country which
        grants an equivalent exemption to U.S. corporations, or the United
        States; or

   (b)  more than 50 percent of the value of the corporation's stock is owned,
        directly or indirectly, by individuals who are residents of Hong Kong
        or of a country which grants an equivalent exemption to U.S.
        corporations, or by a corporation organized in a country which grants
        an equivalent exemption to U.S. corporations and whose stock is
        primarily and regularly traded on an established securities market in
        that country, another country which grants an equivalent exemption to
        U.S. corporations, or the United States. For the purposes of
        sub-paragraph (b), the Government of Hong Kong shall be treated as an
        individual resident of Hong Kong, and stock of a corporation owned by
        another corporation, partnership, trust or estate shall be treated as
        owned proportionately by the beneficial owners.

3. For the purposes of applying the 50 percent test to a Hong Kong
corporation, if the corporation is a U.S. controlled foreign corporation as
defined in Section 957(a) of the United States Internal Revenue Code, the U.S.
shareholders are treated as residents of Hong Kong.

4. The Government of Hong Kong agrees to exempt from tax gross income derived
from the international operation of ships by U.S. residents and corporations
organized in the United States (other than corporations which are subject to
tax by Hong Kong on the basis of residence).

5. In the case of a corporation, the exemption granted by the Government of
Hong Kong shall apply only if the corporation meets either of the following
conditions:

   (a)  the corporation's stock is primarily and regularly traded on an
        established securities market in the United States, another country
        which grants an equivalent exemption to Hong Kong corporations, or
        Hong Kong; or

   (b)  more than 50 percent of the value of the corporation's stock is owned,
        directly or indirectly, by individuals who are residents of the United
        States or of another country which grants an equivalent exemption to
        Hong Kong's corporations, or by a corporation organized in a country
        which grants an equivalent exemption to Hong Kong corporations and
        whose stock is primarily and regularly traded on an established
        securities market in that country, another country which grants an
        equivalent exemption to Hong Kong corporations, or Hong Kong. For the
        purposes of sub-paragraph (b), the Government of the United States of
        America shall be treated as an individual resident of the United
        States of America.

6. Gross income for the purposes of this agreement includes all income derived
from the international operation of ships, including:

   (a)  income from the rental of ships used in international transport on a
        full (time or voyage) or bareboat basis;

   (b)  income from the rental of containers and related equipment used in
        international transport which is incidental to income from the
        international operation of ships;

   (c)  income from the participation in marine transport pools which engage
        in international operation of ships; and

   (d)  gains from the sale, disposal or other alienation of ships by a person
        primarily engaged in the international operation, lease or rental of
        ships.

7. If any difficulty or doubt as to the interpretation or application of this
agreement should arise, the competent authorities of the two Governments shall
seek to resolve such difficulty or doubt by mutual agreement. For this
purpose, the competent authorities are:

   (a)  in the United States, the Secretary of the Treasury or his authorized
        representative; or any person or body authorized to perform any or
        similar functions at present exercisable by the above-mentioned
        office-bearer; and

   (b)  in Hong Kong, the Financial Secretary or his authorized
        representative; or any person or body authorized to perform any or
        similar functions at present exercisable by the above-mentioned
        office-bearer.

8. Either Government may terminate this agreement by giving written notice of
termination.

If the foregoing is acceptable to the Government of Hong Kong, I have the
honor to propose that this note, together with your reply in that sense, shall
constitute an agreement between the Government of the United States of America
and the Government of Hong Kong which shall enter into force on the date of
your reply and shall have effect with respect to taxable years on or after 1
January 1987."

I have the honour to inform you that the Government of Hong Kong has been duly
authorised by the sovereign Government which is responsible for its foreign
affairs to accept the foregoing proposal, and that the proposal is acceptable
to the Government of Hong Kong, which therefore agrees that your note and the
present reply shall constitute an agreement between the Government of Hong
Kong and the Government of the United States of America which shall enter into
force today and shall have effect with respect to taxable years on or after 1
January 1987.

I avail myself of this opportunity to renew to you, Sir, the assurance of my
highest consideration.

Anthony AU-YEUNG

Mr. Donald M. Anderson Consul General of the United States of America Hong
Kong (Enacted 1989)