Royal Caribbean Cruise Lines 2014 Annual Report Download - page 88

Royal Caribbean Cruises Ltd. 87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. RETIREMENT PLAN
We maintain a defined contribution pension plan
covering full-time shoreside employees who have
completed the minimum period of continuous service.
Annual contributions to the plan are discretionary
and are based on fixed percentages of participants’
salaries and years of service, not to exceed certain
maximums. Pension expenses were $15.4 million,
$13.0 million and $15.2 million for the years ended
December 31, 2014, 2013 and 2012, respectively.
NOTE 12. INCOME TAXES
We are subject to corporate income taxes in countries
where we have operations or subsidiaries. We and
the majority of our ship-operating and vessel-owning
subsidiaries are currently exempt from United States
corporate tax on United States source income from
the international operation of ships pursuant to Section
883 of the Internal Revenue Code. Regulations under
Section 883 have limited the activities that are con-
sidered the international operation of a ship or inci-
dental thereto. Accordingly, our provision for United
States federal and state income taxes includes taxes
on certain activities not considered incidental to the
international operation of our ships.
Additionally, some of our ship-operating subsidiaries
are subject to income tax under the tonnage tax
regimes of Malta or the United Kingdom. Under these
regimes, income from qualifying activities is not sub-
ject to corporate income tax. Instead, these subsidiaries
are subject to a tonnage tax computed by reference
to the tonnage of the ship or ships registered under
the relevant provisions of the tax regimes. Income
from activities not considered qualifying activities,
which we do not consider significant, remains subject
to Maltese or United Kingdom corporate income tax.
Income tax (benefit) expense for items not qualifying
under Section 883, tonnage taxes and income taxes
for the remainder of our subsidiaries was approxi-
mately $(20.9) million, $24.9 million and $55.5 million
and was recorded within Other income (expense) for
the years ended December 31, 2014, 2013 and 2012,
respectively. In addition, all interest expense and pen-
alties related to income tax liabilities are classified as
income tax expense within Other income (expense).
We do not expect to incur income taxes on future dis-
tributions of undistributed earnings of foreign subsid-
iaries. Consequently, no deferred income taxes have
been provided for the distribution of these earnings.
Net deferred tax assets and deferred tax liabilities and
corresponding valuation allowances related to our
operations were not material as of December 31, 2014
and 2013.
We regularly review deferred tax assets for recover-
ability based on our history of earnings, expectations
of future earnings, and tax planning strategies. Reali-
zation of deferred tax assets ultimately depends on
the existence of sufficient taxable income to support
the amount of deferred taxes. A valuation allowance
is recorded in those circumstances in which we con-
clude it is not more-likely-than-not we will recover the
deferred tax assets prior to their expiration. During
2012, we determined that a 100% valuation allowance
of our deferred tax assets was required resulting in a
deferred income tax expense of $33.7 million. In addi-
tion, Pullmantur has a deferred tax liability that was
recorded at the time of acquisition. This liability rep-
resents the tax effect of the basis difference between
the tax and book values of the trademarks and trade
names that were acquired at the time of the acquisi-
tion. Due to the impairment charge related to these
intangible assets, we reduced the deferred tax liability
and recorded a deferred tax benefit of $5.2 million.
The net $28.5 million impact of these adjustments was
recognized in earnings during the fourth quarter of
2012 and was reported within Other income (expense)
in our statements of comprehensive income (loss).
During the fourth quarter of 2014, Spain adopted
tax reform legislation, which included among other
things, a reduction of the corporate income tax rate
from 30% to 28% in 2015 and a further reduction to
25% in 2016. As a result, we adjusted our deferred tax
assets and deferred tax liabilities in Spain to reflect the
new tax rate at which we believe they will be realized.
This change resulted in a net deferred income tax
benefit of $10.0 million. The tax reform also amended
the net operating loss carryforward rules by changing
the carryforward period from 18 years to unlimited
and by changing the annual utilization limitation from
25% of taxable income to 70% of taxable income for
certain taxpayers, including Pullmantur. As a result
of the change of the net operating loss carryforward
period, we reversed a portion of the valuation allow-
ance recorded in 2012 to the extent of 70% of the
rate-adjusted deferred tax liability recorded for the
basis difference between the tax and book values of
the trademarks and trade names recorded at the time
of the Pullmantur acquisition and other indefinite lived
assets recorded. The amount of the valuation allow-
ance reversed in the fourth quarter was $33.5 million
which was recorded as a deferred tax benefit. These
deferred tax adjustments were reported within Other
income (expense) in our statements of comprehensive
income (loss).