Carnival Cruises 2009 Annual Report Download - page 22

Code. Income that we earn which is not associated with the international operation of ships or earned in countries
without preferential tax regimes is subject to income tax in the countries where such income is earned.
AIDA, Costa, Cunard, Ibero, Ocean Village, P&O Cruises and P&O Cruises Australia are subject to income
tax under the tonnage tax regimes of either Italy or the United Kingdom. Under both tonnage tax regimes,
shipping profits, as defined under the applicable law, are subject to corporation tax by reference to the net
tonnage of qualifying vessels. Income not considered to be shipping profits under tonnage tax rules is taxable
under either the Italian tax regime applicable to Italian registered ships or the normal UK income tax rules. In
addition, Ibero is subject to a preferential Portuguese income tax applicable to international shipping
operations. We believe that substantially all of the ordinary income attributable to these brands constitutes
shipping profits and, accordingly, Italian, Portuguese and UK income tax expenses for these operations have
been minimal under the existing tax regimes.
Carnival Cruise Lines, Princess, Holland America Line and Seabourn are primarily subject to the income tax
laws of Panama, Bermuda, the Netherlands Antilles and Bermuda, respectively. As a general matter, the laws of
Panama and the Netherlands Antilles exempt earnings derived from international ship operations and Bermuda
does not have an income tax. With respect to the U.S. domestic law exemption, Section 883 regulations limit the
types of income deemed to be derived from the international operation of a ship that are exempt from income
tax. Accordingly, our provision for U.S. federal and state income taxes includes taxes on a portion of our ship
operations, in addition to the transportation, hotel and tour business of Holland America Princess Alaska Tours.
We do not expect to incur income taxes on future distributions of undistributed earnings of foreign
subsidiaries and, accordingly, no deferred income taxes have been provided for the distribution of these
earnings. All interest expense related to income tax liabilities are classified as income tax expenses. In addition to
or in place of income taxes, virtually all jurisdictions where our ships call impose taxes and/or fees based on
guest counts, ship tonnage, ship capacity or some other measure.
On December 1, 2007, we changed the method for which we account for uncertain income tax
positions. This method clarified, among other things, the accounting for uncertain income tax positions by
prescribing a minimum probability threshold that a tax position must meet before a financial statement income
tax benefit is recognized. The minimum threshold is defined as a tax position that, based solely on its technical
merits, is more likely than not to be sustained upon examination by the relevant taxing authority. The tax benefit
to be recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized
upon ultimate resolution. This accounting method was applied to all existing tax positions upon adoption. The
change resulted in an $11 million reduction to our opening fiscal 2008 retained earnings. In addition, based on all
known facts and circumstances and current tax law, we believe that the total amount of our uncertain income tax
position liabilities and related accrued interest are not material to our financial position.
NOTE 9 – Shareholders’ Equity
Carnival Corporation’s Articles of Incorporation authorize its Board of Directors, at its discretion, to issue
up to 40 million shares of preferred stock, and Carnival plc has 100,000 authorized preference shares. At
November 30, 2009 and 2008, no Carnival Corporation preferred stock had been issued and only a nominal
amount of Carnival plc preference shares had been issued.
In June 2006, the Boards of Directors authorized the repurchase of up to an aggregate of $1 billion of
Carnival Corporation common stock and Carnival plc ordinary shares subject to certain restrictions. On
September 19, 2007, the Boards of Directors increased the remaining $578 million general repurchase
authorization back to $1 billion. During fiscal 2008 and 2007, we purchased 0.6 million and 0.2 million shares of
Carnival Corporation common stock, and 1.3 million and 7.3 million ordinary shares of Carnival plc,
respectively, under this general repurchase authorization. At January 28, 2010, the remaining availability under
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