Royal Caribbean Cruise Lines 2011 Annual Report Download - page 30

2011 ANNUAL REPORT 26
PART I
States source shipping income and income from
activities incidental thereto.
We believe that most of our income and the income
of our ship-owning subsidiaries is derived from or
incidental to the international operation of a ship or
ships and, therefore, is exempt from taxation under
Section 883. Additionally, income earned through a
partnership will qualify as income derived from or
incidental to the international operation of a ship or
ships to the same extent as the income would so
qualify if earned directly by the partners. Thus, we
believe that United States source income derived from
or incidental to the international operation of a ship
or ships earned by the United Kingdom tonnage tax
company will qualify for exemption under Section 883
to the same extent as if it were earned directly by the
owners of the United Kingdom tonnage tax company.
Regulations under Section 883 list activities that are
not considered by the Internal Revenue Service to be
incidental to the international operation of ships
including income from the sale of air and land trans-
portation, shore excursions and pre- and post-cruise
tours. To the extent the income from these activities
is earned from sources within the United States, that
income will be subject to United States taxation.
Taxation in the Absence of an Exemption under
Section 883 of the Internal Revenue Code
If we, Celebrity Cruises, Inc. or our ship-owning subsid-
iaries were to fail to meet the requirements of Section
883 of the Internal Revenue Code, or if the provision
was repealed, then, as explained below, such compa-
nies would be subject to United States income taxation
on a portion of their income derived from or inciden-
tal to the international operation of our ships.
Because we and Celebrity Cruises, Inc. conduct a trade
or business in the United States, we and Celebrity
Cruises, Inc. would be taxable at regular corporate
rates on our separate company taxable income (i.e.,
without regard to the income of our ship-owning sub-
sidiaries) from United States sources. In addition, if
any of our earnings and profits effectively connected
with our United States trade or business were with-
drawn, or were deemed to have been withdrawn, from
our United States trade or business, those withdrawn
amounts would be subject to a “branch profits” tax at
the rate of 30%. We and Celebrity Cruises, Inc. would
also be potentially subject to tax on portions of certain
interest paid by us at rates of up to 30%.
If Section 883 were not available to our ship-owning
subsidiaries, each such subsidiary would be subject
to a special 4% tax on its United States source gross
transportation income, if any, each year because it does
not have a fixed place of business in the United States
and its income is derived from the leasing of a ship.
Other United States Taxation
Our primary domestic United States operation, the
Alaska land-tour operation, is subject to United States
federal income tax. Additionally, we and Celebrity
Cruises, Inc. earn United States source income from
activities not considered incidental to international
shipping. The tax on such income is not material to
our results of operation for all years presented.
State Taxation
We, Celebrity Cruises, Inc. and certain of our subsid-
iaries are subject to various United States state income
taxes which are generally imposed on each state’s
portion of the United States source income subject to
federal income taxes. Additionally, the state of Alaska
subjects an allocated portion of the total income of
companies doing business in Alaska and certain other
affiliated companies to Alaska corporate state income
taxes and also imposes a 33% tax on adjusted gross
income from onboard gambling activities conducted
in Alaska waters. This did not have a material impact
to our results of operations for all years presented.
MALTESE, SPANISH AND FRENCH INCOME TAX
Our Pullmantur ship owner-operator subsidiaries,
which include the owner-operator of CDF Croisieres
de France’s ship, qualify as licensed shipping organi-
zations in Malta. No Maltese income tax is charged
on the income derived from shipping activities of a
licensed shipping organization. Instead, a licensed
shipping organization is liable to pay a tonnage tax
based on the net tonnage of the ship or ships regis-
tered under the relevant provisions of the Merchant
Shipping Act. A company qualifies as a shipping orga-
nization if it engages in qualifying activities and it
obtains a license from the Registrar-General to enable
it to carry on such activities. Qualifying activities
include, but are not limited to, the ownership, opera-
tion (under charter or otherwise), administration and
management of a ship or ships registered as a Maltese
ship in terms of the Merchant Shipping Act and the
carrying on of all ancillary financial, security and com-
mercial activities in connection therewith.
Our Maltese operations that do not qualify as licensed
shipping organizations, which are not considered sig-
nificant, remain subject to normal Maltese corporate
income tax.
Pullmantur has sales and marketing functions, land-
based tour operations and air business in Spain. These
activities are subject to Spanish taxation. The tax from
these operations is not considered significant to our
operations. CDF Croisieres de France’s French opera-
tions are minimal and therefore, its French income
taxes are minimal.