Sec. 3702. Taxation of passenger cruise gross income of foreign corporations and nonresident alien individuals
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Section 882 is amended by redesignating subsection
(f)as subsection
(g)and by inserting after subsection
(e)the following new subsection: For purposes of this title, the effectively connected passenger cruise gross income of a foreign corporation shall be treated as gross income which is effectively connected with the conduct of a trade or business in the United States. For purposes of this subsection, the term effectively connected passenger cruise gross income means, with respect to the operation of any ship in a covered voyage, the United States territorial waters percentage of the gross income (determined without regard to section 883(a)(1)) derived from such operation, including any amount received with respect to the provision of any on- or off-board activities, services, or sales, with respect to passengers incidental to such operation (or with respect to any agreement with any person with respect to the provision of any such activities, services, or sales). For purposes of this subsection— The term United States territorial waters percentage means, with respect to the operation of any ship in any covered voyage, the ratio (expressed as a percentage) of— the number of days during such voyage such ship was operated in the territorial waters of the United States, divided by the total number of days of such voyage. If a ship— is operated in a covered voyage, or is operated in the territorial waters of the United States during a covered voyage, for any portion of a calendar day, such ship shall be treated as having operated in a covered voyage, or as having operated in such territorial waters, respectively, for the entirety of such day. The territorial waters of the United States shall be treated as consisting of those waters which are— within the international boundary line between the United States and any contiguous foreign country, or within 12 nautical miles from low tide on the coastline of the United States. For purposes of this subsection— The term covered voyage has the meaning given such term by section 4472(1). Except as otherwise provided by the Secretary, if passengers embark a ship in the United States and more than 10 percent of such passengers disembark in the United States, the operation of such ship at all times between such events shall be treated as a covered voyage. Nothing in the preceding sentence shall preclude any operation of a ship (including any operation of a ship before or after such events) which would otherwise be treated as part of a covered voyage from being so treated. Gross income which would, without regard to this subsection, be gross income which is effectively connected with the conduct of a trade or business in the United States— shall be so treated, and shall not be taken into account as gross income under paragraph (2). . Section 871 is amended by redesignating subsection
(n)as subsection
(o)and by inserting after subsection
(m)the following new subsection: For purposes of this title, the effectively connected passenger cruise gross income of a nonresident alien individual shall be treated as gross income which is effectively connected with the conduct of a trade or business in the United States. For purposes of this subsection— Terms used in this subsection which are also used in section 882(f) shall have the same meaning as when used in such section, except that section 882(f)(2) shall be applied by substituting section 872(b)(1) for section 883(a)(1) . Rules similar to the rules of section 882(f)(5) shall apply for purposes of this subsection. . Section 883(a)(1) is amended by striking Gross income and inserting Except as provided in section 882(f), gross income . Section 872(b)(1) is amended by striking Gross income and inserting Except as provided in section 871(n), gross income . Section 887(b)(4) is amended by adding at the end the following new flush text: The preceding sentence shall not apply to any United States source gross transportation income which is effectively connected passenger cruise gross income (within the meaning of section 871(n) or 882(f)). . The amendments made by this section shall apply to taxable years beginning after December 31, 2014.