Carnival Cruises 2012 Annual Report Download - page 85

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Table of Contents
Regulations under Section 883 list items that the Internal Revenue Service does not consider to be incidental to ship operations. Among the items identified as
not incidental is income from the sale of air transportation, transfers, shore excursions and pre- and post-cruise land packages to the extent earned from
sources within the U.S.
We believe that the U.S. source transportation income earned by Carnival plc and its Italian resident subsidiary currently qualifies for exemption from U.S.
federal income tax under applicable bilateral U.S. income tax treaties.
Our domestic U.S. operations, principally the hotel and transportation business of Holland America Princess Alaska Tours, are subject to state and federal
income taxation in the U.S.
Carnival Corporation and Carnival plc and certain of their subsidiaries are subject to various U.S. state income taxes generally imposed on each state’s portion
of the U.S. source income subject to U.S. federal income taxes. However, the state of Alaska imposes an income tax on its allocated portion of the total income
of our companies doing business in Alaska and certain of their subsidiaries.
UK and Australian Income Tax
Cunard, P&O Cruises (UK) and P&O Cruises (Australia) are divisions of Carnival plc and have elected to enter the UK tonnage tax regime through 2021.
Companies to which the tonnage tax regime applies pay corporation taxes on profits calculated by reference to the net tonnage of qualifying ships. UK
corporation tax is not chargeable under the normal UK tax rules on these brands’ relevant shipping income. Relevant shipping income includes income from
the operation of qualifying ships and from shipping related activities.
For a company to be eligible for the regime, it must be subject to UK corporation tax and, among other matters, operate qualifying ships that are strategically
and commercially managed in the UK. Companies within UK tonnage tax are also subject to a seafarer training requirement.
Our UK non-shipping activities that do not qualify under the UK tonnage tax regime remain subject to normal UK corporation tax. Dividends received from
subsidiaries of Carnival plc doing business outside the UK are generally exempt from UK corporation tax.
P&O Cruises (Australia) and all of the other cruise ships operated internationally by Carnival plc for the Australian market are exempt from Australian
corporation tax by virtue of the UK/Australian income tax treaty.
Italian Income Tax
Costa, AIDA and Ibero have elected to enter the Italian tonnage tax regime through 2014 and intend to reapply for an additional ten-year period beginning
2015. Companies to which the tonnage tax regime applies pay corporation taxes on shipping profits calculated by reference to the net tonnage of qualifying
ships.
Most of Costa’s and AIDA’s earnings not considered to be shipping profits for Italian tonnage tax purposes will be taxed at an effective tax rate of
approximately 6% under the Italian tax regime since all of their ships are Italian registered.
In 2010, AIDA and Costa recognized a $30 million income tax benefit from an Italian investment incentive related to certain of their newbuild expenditures.
Portuguese, Spanish and German Income Tax
All of Ibero’s ships are registered in Portugal. Provided certain local employment requirements are satisfied, most of Ibero’s income that is not considered to be
shipping profits for Italian tonnage tax purposes is subject to Portuguese income tax at effective rates of 5% or less through 2020. After 2020, such income will
be subject to the normal Portuguese tax rate.
Ibero’s Spanish operations are minimal and, therefore, its Spanish income taxes are minimal.
Substantially all of AIDA’s earnings are exempt from German corporation tax by virtue of the Italy/Germany income tax treaty.
Brazilian and Chinese Income and Other Taxes
From November through March, Costa and Ibero charter certain of their ships for operation in Brazil to Brazilian subsidiaries. The subsidiaries’ earnings are
subject to Brazilian resident income tax, and we believe that payments these subsidiaries make to Costa and Ibero are exempt from Brazilian income tax under
Brazilian domestic law and the Italy/Brazil income tax treaty.
Substantially all of Costa’s income from its operations in China is exempt from Chinese corporation tax by virtue of the Italy/China Maritime tax treaty.
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