Solvency of Cruise Lines

[npcl]

1 hour ago, gatour said:

Well they have helped  Bank of America/Merrill Lynch both of which had and still have global operations.  Also they helped GM and Chrysler which had and still have operations.  In all three cases they are "global" companies.

 

Should they help the cruise lines, I am on the fence.

While the companies you mentioned have global operations, they are companies that, unlike the cruise lines, are incorporated in the US, have their tax homes in the US. As far as their foreign operations, unlike the cruise industry, they pay taxes in the US on money earned by those foreign operations when that money is brought back into the US.

[ontheweb]

8 hours ago, npcl said:

While the companies you mentioned have global operations, they are companies that, unlike the cruise lines, are incorporated in the US, have their tax homes in the US. As far as their foreign operations, unlike the cruise industry, they pay taxes in the US on money earned by those foreign operations when that money is brought back into the US.

OTOH, entities mentioned created the crisis they were in by their reckless policies. The cruise lines did not create the pandemic.

[ON cruiser]

Certainly, the cruise lines did not cause the pandemic. Yet, with the accumulation of debt and building ever more ships (adding capacity), and spending heavily (including large executive pay packages), with nothing saved for the proverbial and inevitable "rainy day", one can fairly state that they did not plan well, either.

 

Is their lack of planning and business prudence the responsibility of the taxpayer?  Something to ponder. 

[ontheweb]

4 hours ago, ON cruiser said:

Certainly, the cruise lines did not cause the pandemic. Yet, with the accumulation of debt and building ever more ships (adding capacity), and spending heavily (including large executive pay packages), with nothing saved for the proverbial and inevitable "rainy day", one can fairly state that they did not plan well, either.

 

Is their lack of planning and business prudence the responsibility of the taxpayer?  Something to ponder. 

I agree that they did not have any plans for an economic downturn. They not only keep adding ships, but they are getting larger and larger.

[Aquahound]

Should the cruise lines get a bail out?  To be honest, I'm on the fence about it.  But folks should probably educate themselves before drawing a firm line in the sand.  People keep saying they don't pay taxes when in fact, they do.  They might only pay a little over 1% in taxes, but how much did Amazon pay?  Netflix?  Facebook?  General Motors was mentioned in this thread.  Well, you might want to look in to how much they paid in taxes.  It might surprise you.  

 

My point is, if you look in to America's largest corporations, you might find that what the large cruise corporations pay isn't as bleak as some assume.  

 

[shank63]

Before the US government bails out the cruise industry, there are several questions that come to mind:  the cruise industry continues to build new ships, but not in the US shipyards; the vast majority (close to 100%) of the crew on cruise ships are not US citizens and likely pay no US taxes;  cruise ships are registered in foreign countries and not in the US which assumes fewer regulations and no US taxes;  majority of the cruise industry comes from US passengers.  So if any bailout is required, the fair method would be a recovery fee paid by every passenger regardless of citizenship as an additional to the fares.  The cruise industry is not essential to the US economy or national security.

[molemaui]

1 hour ago, Aquahound said:

Should the cruise lines get a bail out?  To be honest, I'm on the fence about it.  But folks should probably educate themselves before drawing a firm line in the sand.  People keep saying they don't pay taxes when in fact, they do.  They might only pay a little over 1% in taxes, but how much did Amazon pay?  Netflix?  Facebook?  General Motors was mentioned in this thread.  Well, you might want to look in to how much they paid in taxes.  It might surprise you.  

 

My point is, if you look in to America's largest corporations, you might find that what the large cruise corporations pay isn't as bleak as some assume.  

 

 

I hear you (and we LOVE cruising)  but...most cruise lines choose to have a tax home outside the US. That's a choice they make usually based on ongoing tax savings from normal operations and probably a whole of other liability issues. Sure they pay some taxes but I would not equate it to a Amazon or GM comparison as these corporations are global but chose to be US corporations. With this in mind, I believe any taxpayer relief or bailout should not go to these entities. Regarding loans, our government actually made money on loans given for bailout purposes in 2008-2009. I'm on the fence with loans. 

[St Pete Cruiser]

Arnold Donald, Carnival CEO, has addressed the crews on the fleet wide ships, telling them that Carnival is the strongest cruise company in the world and will survive this crisis.  I hope he is right.  Think about Viking Ocean with all new and unpaid for ships compared with Carnival's with many ships over 15 years old.

[AL3XCruise]

1 hour ago, Aquahound said:

They might only pay a little over 1% in taxes, but how much did Amazon pay?  Netflix?  Facebook?  General Motors was mentioned in this thread.  Well, you might want to look in to how much they paid in taxes.  It might surprise you.

It isn't just a question of corporate tax rate.  GM alone employs nearly 100,000 US residents who are subject to US income taxes.  These people and their families spend money at other US businesses, resulting in additional jobs and tax revenue.

 

We are in a situation where we need to put our dollars where they have the most impact.  I'm not trying to take a protectionist stand against how the cruise industry does business (I wouldn't cruise with them if I had such animosity against them), but I don't see them as providing an essential service or providing a return in US jobs or US tax revenue.  

 

I do see RCCL's new financing as a big step forward for them, and hope that CCL and NCLH continue to improve their positions.

[gatour]

15 hours ago, npcl said:

While the companies you mentioned have global operations, they are companies that, unlike the cruise lines, are incorporated in the US, have their tax homes in the US. As far as their foreign operations, unlike the cruise industry, they pay taxes in the US on money earned by those foreign operations when that money is brought back into the US.

Except they don't bring the money back to the US.  It sits off shore. Until they convince the gov't a "one" time tax break.  This happened years ago, and may have had a a second "one" time tax break a couple of years ago.

[npcl]

2 hours ago, gatour said:

Except they don't bring the money back to the US.  It sits off shore. Until they convince the gov't a "one" time tax break.  This happened years ago, and may have had a a second "one" time tax break a couple of years ago.

They might not bring it all back (the US is actually one of the few countries where companies must pay taxes on money earned outside of the US), but unlike the Cruise lines, those global companies have substantial US operations.  In most cases the majority of their money is made in the US and taxes paid on that income.  As far as the cruise lines go, most employees are outside the US, the companies are incorporated outside of the US, Their tax home is outside of the US.  They do not even pay taxes on money received from people living in the US due to a tax exclusion for ships outside of the country.  The have few american employees outside of the HQ employees and in the case of HAL and Princess their Alaska tour properties.

[npcl]

5 hours ago, Aquahound said:

Should the cruise lines get a bail out?  To be honest, I'm on the fence about it.  But folks should probably educate themselves before drawing a firm line in the sand.  People keep saying they don't pay taxes when in fact, they do.  They might only pay a little over 1% in taxes, but how much did Amazon pay?  Netflix?  Facebook?  General Motors was mentioned in this thread.  Well, you might want to look in to how much they paid in taxes.  It might surprise you.  

 

My point is, if you look in to America's largest corporations, you might find that what the large cruise corporations pay isn't as bleak as some assume.  

 

Lets take CCL for example (they actually pay more US tax than the other two, mostly because of their Alaskan propertys)

 

World wide CCL paid 71 million in taxes last year according to their 10k.  Note that is world wide, not just in the US, on 3,060 million  So their world wide tax rate for last year was  2.3%

 

From Facebook Provision for taxes 6,327 million on 24,812 million in income  roughly 25%  Probably not a good one to use in defending the cruise lines

Netflix   provision for taxes 195 million on 2062  Million  approximately 9.4%

Amazon   2374 million on 13976 million  approximately 17%

General Motors (also keep in mind the amount of sales tax, and auto registration fees states collect on GM products)

769 million on 6667 million so they world wide tax numbers are approximately 11.5%.  Now in the case of GM they are still using some tax credits so the break down on income is US 3,826  Foreign 2342 million.  Taxes Federal 42 million, state 102 million, foreign 758 million.  However they still have a Federal tax credit of 145 million.  So they got money back from the feds, paid the states, and a lot in foreign.

 

From the notes on taxation from the last CCL 10k

 

https://www.sec.gov/cgi-bin/viewer?action=view&cik=815097&accession_number=0000815097-20-000003&xbrl_type=v#

 

U.S. Income Tax

 

We are primarily foreign corporations engaged in the business of operating cruise ships in international transportation. We also own and operate, among other businesses, the U.S. hotel and transportation business of Holland America Princess Alaska Tours through U.S. corporations.

 

Our North American cruise ship businesses and certain ship-owning subsidiaries are engaged in a trade or business within the U.S. Depending on its itinerary, any particular ship may generate income from sources within the U.S. We believe that our U.S. source income and the income of our ship-owning subsidiaries, to the extent derived from, or incidental to, the international operation of a ship or ships, is currently exempt from U.S. federal income and branch profit taxes.

 

Our domestic U.S. operations, principally the hotel and transportation business of Holland America Princess Alaska Tours, are subject to federal and state income taxation in the U.S.

 

In general, under Section 883 of the Internal Revenue Code, certain non-U.S. corporations (such as our North American cruise ship businesses) are not subject to U.S. federal income tax or branch profits tax on U.S. source income derived from, or incidental to, the international operation of a ship or ships. Applicable U.S. Treasury regulations provide in general that a foreign corporation will qualify for the benefits of Section 883 if, in relevant part, (i) the foreign country in which the foreign corporation is organized grants an equivalent exemption to corporations organized in the U.S. in respect of each category of shipping income for which an exemption is being claimed under Section 883 (an “equivalent exemption jurisdiction”) and (ii) the foreign corporation meets a defined publicly-traded corporation stock ownership test (the “publicly-traded test”). Subsidiaries of foreign corporations that are organized in an equivalent exemption jurisdiction and meet the publicly-traded test also benefit from Section 883. We believe that Panama is an equivalent exemption jurisdiction and that Carnival Corporation currently satisfies the publicly-traded test under the regulations. Accordingly, substantially all of Carnival Corporation’s income is exempt from U.S. federal income and branch profit taxes.

 

Regulations under Section 883 list certain activities that the IRS does not consider to be incidental to the international operation of ships and, therefore, the income attributable to such activities, to the extent such income is U.S. source, does not qualify for the Section 883 exemption. Among the activities identified as not incidental are 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 subsidiaries currently qualifies for exemption from U.S. federal income tax under applicable bilateral U.S. income tax treaties.

 

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 under a rolling ten-year term and, accordingly, reapply every year. 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 cruise segment of the Australian vacation region are exempt from Australian corporation tax by virtue of the UK/Australian income tax treaty.

 

Italian and German Income Tax

 

In early 2015, Costa and AIDA re-elected to enter the Italian tonnage tax regime through 2024 and can reapply for an additional ten-year period beginning in early 2025. 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 that are not eligible for taxation under the Italian tonnage tax regime will be taxed at an effective tax rate of 4.8% in 2019 and 2018.

 

Substantially all of AIDA’s earnings are exempt from German income taxes by virtue of the Germany/Italy income tax treaty.

 

Asian Countries Income Taxes

 

Substantially all of our brands’ income from their international operations in Asian countries is exempt from income tax by virtue of relevant income tax treaties.

 

Other

 

We recognize income tax provisions for uncertain tax positions, based solely on their technical merits, when it is more likely than not to be sustained upon examination by the relevant tax 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. 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 significant to our financial position. All interest expense related to income tax liabilities is included in income tax expense.

 

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. In addition to or in place of income taxes, virtually all jurisdictions where our ships call impose taxes, fees and other charges based on guest counts, ship tonnage, passenger capacity or some other measure, and these taxes, fees and other charges are included in commissions, transportation and other costs and other ship operating expenses.

 

Edited March 23, 2020 by npcl

[npcl]

3 hours ago, AL3XCruise said:

It isn't just a question of corporate tax rate.  GM alone employs nearly 100,000 US residents who are subject to US income taxes.  These people and their families spend money at other US businesses, resulting in additional jobs and tax revenue.

 

We are in a situation where we need to put our dollars where they have the most impact.  I'm not trying to take a protectionist stand against how the cruise industry does business (I wouldn't cruise with them if I had such animosity against them), but I don't see them as providing an essential service or providing a return in US jobs or US tax revenue.  

 

I do see RCCL's new financing as a big step forward for them, and hope that CCL and NCLH continue to improve their positions.

I would say as part of any money going to the Cruise Lines the US should modify part 883 of the IRS tax code that removes the exclusion that the cruise lines hide behind.  That would require them to pay taxes on money earned on all fares sold in the US, as well as on all transfers and pre/post cruise hotel stays and airline flights sold in the US.

 

I would also expect the government take an equity position in the cruise lines as part of any package, limit executive pay, remove dividends and stock buy backs, as part of any bailout arrangement.

[AL3XCruise]

19 minutes ago, npcl said:

I would also expect the government take an equity position in the cruise lines as part of any package, limit executive pay, remove dividends and stock buy backs, as part of any bailout arrangement.

 

I agree with your points.  I'm not typically a big fan on heavy handed controls, but if a company requires a government investment, the public's interest need to be considered as they now have equity.  In the case of cruise lines, your points seem like reasonable measures to ensure that happens.

 

It will be interesting if, beyond the immediate financial issues, we see structural changes to how cruise lines operate in the United States.  Of course, that applies to many other industries.  While I'm sure the will continue to play an important role in the global economy, I could see certain aspects of international supply chains, just in time inventory, etc., coming under increased scrutiny.  

[Alibaster McGillicutty]

4 hours ago, AL3XCruise said:

It isn't just a question of corporate tax rate.  GM alone employs nearly 100,000 US residents who are subject to US income taxes.  These people and their families spend money at other US businesses, resulting in additional jobs and tax revenue.

 

We are in a situation where we need to put our dollars where they have the most impact.  I'm not trying to take a protectionist stand against how the cruise industry does business (I wouldn't cruise with them if I had such animosity against them), but I don't see them as providing an essential service or providing a return in US jobs or US tax revenue.  

 

I do see RCCL's new financing as a big step forward for them, and hope that CCL and NCLH continue to improve their positions.

This lines up with my line of thought.  If the business helps Americans, either through taxes, providing jobs, etc. then sure.........just get in line behind mom and pop shops located here on our soil first.

 

Sorry, but mom & pop put food on my table and helped me get an education so I am more worried about those than I am any cruise line.

 

[npcl]

53 minutes ago, AL3XCruise said:

 

I agree with your points.  I'm not typically a big fan on heavy handed controls, but if a company requires a government investment, the public's interest need to be considered as they now have equity.  In the case of cruise lines, your points seem like reasonable measures to ensure that happens.

 

It will be interesting if, beyond the immediate financial issues, we see structural changes to how cruise lines operate in the United States.  Of course, that applies to many other industries.  While I'm sure the will continue to play an important role in the global economy, I could see certain aspects of international supply chains, just in time inventory, etc., coming under increased scrutiny.  

Major structural changes would probably kill off cruising as we know it.

 

I suspect after this is over a number of things will need to be re-thought.  International supply chains.  Strategic stock piles. medical supply lines. Required minimum stock of protective equipment in hospital, county, state, and federal level.  Maybe a change that gives the Federal Government to declare a lock down, current law allows the Feds to quarantine individuals and do some things between states and at the US borders, but the lockdowns and other such activities is pretty much limited to the states by current law. Resulting in a mish mash of actions as each state does different things.

[Woofbite]

On 3/23/2020 at 11:43 AM, molemaui said:

 

I hear you (and we LOVE cruising)  but...most cruise lines choose to have a tax home outside the US. That's a choice they make usually based on ongoing tax savings from normal operations and probably a whole of other liability issues. Sure they pay some taxes but I would not equate it to a Amazon or GM comparison as these corporations are global but chose to be US corporations. With this in mind, I believe any taxpayer relief or bailout should not go to these entities. Regarding loans, our government actually made money on loans given for bailout purposes in 2008-2009. I'm on the fence with loans. 

 

Being U.S. Corporation doesn't necessarily mean a lot in Income taxes:

Amazon did not pay any federal income taxes for the second straight year in 2018 and is receiving a $129 million tax rebate, according to a new report. 

 General Electric, which has paid a net negative federal corporate income tax rate since at least 2008, but may find itself on the hook for as much as $9 billion in new taxes because of the latest tax bill.

Granted, they do employ a lot of American people who do pay taxes.

[molemaui]

3 hours ago, Woofbite said:

 

Being U.S. Corporation doesn't necessarily mean a lot in Income taxes:

Amazon did not pay any federal income taxes for the second straight year in 2018 and is receiving a $129 million tax rebate, according to a new report. 

 General Electric, which has paid a net negative federal corporate income tax rate since at least 2008, but may find itself on the hook for as much as $9 billion in new taxes because of the latest tax bill.

Granted, they do employ a lot of American people who do pay taxes.

 

The issue isn't how much taxes an American corporation pays. One must assume they are using every legal advantage available to them per tax law just as you and I do on a smaller (I assume) basis. The fairness of this can be debated on a different board. Companies that use one of the states or territories of the United States to incorporate have agreed to follow our laws and are entitled to whatever Congress decides-good or bad. Hopefully whatever is ultimately decided is beneficial to United States based businesses, corporations and citizens. (not particularly in that order) 

 

Nothing at all against cruise line. I really hope everyone comes out OK but if you live by the sword, you die by the sword. (I heard that somewhere)

[Jim9310]

5 hours ago, Woofbite said:

 

Being U.S. Corporation doesn't necessarily mean a lot in Income taxes:

Amazon did not pay any federal income taxes for the second straight year in 2018 and is receiving a $129 million tax rebate, according to a new report. 

 General Electric, which has paid a net negative federal corporate income tax rate since at least 2008, but may find itself on the hook for as much as $9 billion in new taxes because of the latest tax bill.

Granted, they do employ a lot of American people who do pay taxes.

They are not U.S. corporations.

NCLH (Norwegian) is incorporated in Bermuda, RCCL (Royal Caribbean) in Liberia,  and CCL (Carnival Corporation) is incorporated in Panama whereas Carnival plc is incorporated in the UK.

Edited March 25, 2020 by Jim9310
clarify

[billbunger]

36 minutes ago, Jim9310 said:

They are not U.S. corporations.

NCLH (Norwegian) is incorporated in Bermuda, RCCL (Royal Caribbean) in Liberia,  and CCL (Carnival Corporation) is incorporated in Panama whereas Carnival plc is incorporated in the UK.

I believe the OP was not suggesting the cruise lines are American companies. The point being made was due to laws and circumstances you don't always pay taxes to the American government when you are an American company so you can have similar tax savings as off shore entities do.

[Hlitner]

Economics is a very complex topic with most folks having little clue as to the actual facts vs their own agenda.   Most of the major corporations are now multi-national in terms of structure.  Accounting firms, financial attorneys, corporate planners and executives are constantly restructuring and strategizing in order to maximize profits and minimize taxes.  

 

The cruise industry in America has a huge impact, economically, on a small part of the country and a lesser impact across the remainder.  This latter is interesting if you simply consider the amount of wine and booze purchased by the cruise industry.  Hotels and restaurants in South Florida depend on the cruise industry for a good portion of their business. But the hotels and restaurants in Denver, CO, would not be impacted if the entire cruise industry failed.  

 

Put simply, I do not think the cruise industry is too big or too valuable to fail!  As one who has been an avid cruiser for over forty years this makes me sad.   Make no mistake about this.  If ports around the world do not soon reopen to cruise ships, the industry will collapse!  And even if many ports do reopen, will the industry still be able to fill their ships with folks who can ignore their fears of being stuck on a "prison ship" in the event that anyone on the large ship gets sick?

 

Hank

[Aquahound]

13 hours ago, molemaui said:

 

The issue isn't how much taxes an American corporation pays. One must assume they are using every legal advantage available to them per tax law just as you and I do on a smaller (I assume) basis. The fairness of this can be debated on a different board. Companies that use one of the states or territories of the United States to incorporate have agreed to follow our laws and are entitled to whatever Congress decides-good or bad. Hopefully whatever is ultimately decided is beneficial to United States based businesses, corporations and citizens. (not particularly in that order) 

 

I think you misunderstood the context.  A large sentiment on these boards is that the cruise lines should not be bailed out due to them not being U.S. incorporated and them not paying much in the way of U.S. taxes.  I...and some others...were simply pointing out that corporations who are U.S. incorporated do not much much either.  

[molemaui]

37 minutes ago, Aquahound said:

 

I think you misunderstood the context.  A large sentiment on these boards is that the cruise lines should not be bailed out due to them not being U.S. incorporated and them not paying much in the way of U.S. taxes.  I...and some others...were simply pointing out that corporations who are U.S. incorporated do not much much either.  

 

True-that's for Congress to fix (or not) 

[cruiserchuck]

Even if the entire industry failed, which I believe is unlikely, private equity companies will come in and buy the ships and restart the industry.  We will still be able to take all the cruises we want to.  

 

https://www.cnbc.com/2020/03/25/private-equity-eyes-coronavirus-hit-industries-theyve-been-waiting.html

[Jim9310]

Although Congress hasn’t passed the $500 billion bailout bill yet, cruise line stocks are surging this afternoon:  CCL (Carnival) up 19%, NCLH (Norwegian) up 26%, and RCL (Royal Caribbean) up  26%.