No Taxes - The Cruise Lines' Dirty Little Secret

One of the little know facts about the cruise industry is that it pays virtually no U.S. taxes.

The cruise lines take advantage of an obscure provision in the U.S. tax code which permits shipping companies to evade taxes by incorporating overseas and flying the flags of foreign countries.  That's why Carnival is incorporated in Panama, Royal Caribbean is incorporated in Liberia, and Princess Cruises is incorporated in Bermuda. 

The New York Times covered the issue of cruise line taxes today:

"The Carnival Corporation wouldn’t have much of a business without help from various branches of the government.  The United States Coast Guard keeps the seas safe for Carnival’s cruise ships. Customs officers make it possible for Carnival cruises to travel to other countries.  State and local governments have built roads and bridges leading up to the ports where Carnival’s ships dock.  

Mickey Arison - Carnival Cruise - No TaxesBut Carnival’s biggest government benefit of all may be the price it pays for many of those services.  Over the last five years, the company has paid total corporate taxes — federal, state, local and foreign — equal to only 1.1 percent of its cumulative $11.3 billion in profits.  Thanks to an obscure loophole in the tax code, Carnival can legally avoid most taxes."

I have written about the cruise industry's ability to avoid U.S. taxes since starting this blog.

Carnival was created by Ted Arison (father of current CEO Mickey Arison, photo right).  Senior Arison collected billions of dollars from tax paying U.S. passengers and lived the good life in Miami.  But he registered his Miami-based cruise line and his cruise ships in Panama to avoid U.S. taxes.  In 1990, he abandoned Miami, denounced his U.S. citizenship, and returned to Israel with his billions in a ploy to avoid estate and inheritance taxes.

Whenever I think of cruise tycoons like the Arisons and the foreign cruise lines like Carnival and Royal Caribbean, I can't help but think what a scam they are running.    

The Miami-based cruise lines file papers of incorporation and vessel registration in distant countries where no one will bother them with things like income tax, wage and labor laws, or safety regulations. They then collect billions of dollars a year from hard working saps - the U.S. tax paying public. 

 

Like this article?  Consider reading: 

Cruise Line Fat Cat Billionaires 

What the Cruise Industry Has to Learn From My Cousins Back in Arkansas

 

Credits: Mickey Arison - David Adame AP (via Cruise Blog)

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Comments (19) Read through and enter the discussion with the form at the end
Fake Bob Peltz - February 2, 2011 8:01 AM

Jim:

I don't know about you but I hate paying taxes.

And now that we are brothers in arms against the wretched cruise lines, we should ensure they pay no taxes!

So there will be more money for us from them !

Now let's get those bastards.

FBP

Mia - February 2, 2011 2:11 PM

Wow,no taxes ??
So, no more screw up please !

Discounts for everyone ...

Howard - February 3, 2011 8:21 AM

Don't tell me that you don't look for loopholes to decrease the amount of taxesyou pay. Why should they be any different?

By the way, Ted Arison was always an Israeli citizen, so moving back there is a logical step for him. That he made lots of money is his good luck. I'll bet he paid lots of US tax

Jim Walker - February 3, 2011 9:03 AM

Howard:

I practice law, not search for loopholes. I have an accountant, comply with the U.S. tax code, and pay around 30% in taxes to the Federal government.

Yes, Arison had dual citizenship, Israeli - U.S. But he gave up his U.S. citezenship and gave up living here. (There is no inheritance tax if you give up your citizenship and leave the U.S. and then die over ten years later.) He died nine years later. Sounds like bad luck to me.

Jim DeGrazia - February 3, 2011 9:34 AM

Legally we can't tax foreign (cruise ships)corporations, but we can impose other charges for services rendered...such as medivac's and any other service provided by the US Coast Guard, sanitary inspections by CDC's Vessel Sanitation Program. Make them pay for roads and port expansion to accomadate their business. Walmart usually pays cities to provide access roads and traffic signals. Although they usually name the street Walmart Way. So why not have a Costa Way, Holland America Avenue, or Carnival Lane as long as they pay their fair share of the costs to enhance their business.

Willy - February 3, 2011 2:02 PM

No taxes, but Royal Caribbean charges 15% tax onboard .
Who understand this business ...

Rick - April 10, 2011 8:39 PM

MoveOn will be picketing Carnivals headquarters, 3655 NW 87th Avenue Miami, FL 33178 on April 18th at 11:30 am.

Events at other locations will be held nationally.

Sign Up at http://pol.moveon.org/event/events/index.html?action_id=242

Come one come all.

Hugh Mann - April 21, 2011 10:17 PM

We live near the port of Tampa and have been on several RCI and Carnival cruises. They charge us tax, but pay none of there own? And they are not even US based corporations even though they have US based terminals? Good bye Carnival and RCI.

Brigitte - April 25, 2011 10:36 PM

I say if u can find a loop hole not to pay taxes go for it ... Our government screws us every chance they can ... So my thought is go for it /(

A Cruiser - May 22, 2011 2:04 PM

The cruise lines charge passengers for taxes and government fees - which they in turn pay to the governments of the countries their ships visit. The cruise lines pay quite a bit in port fees at each port they visit (including US ports). They do not pay much in US federal tax because they are not US companies. Whats the point in this article here? So what? Brazilian underwear companies don't pay US federal taxes either - because they are not US companies. It seems pretty simple to me.

Jay - August 24, 2011 1:25 PM

I'm with Howard. If the loophole exists, why not take it? I love Carnival and am proud that an afforable, fun vacation option like cruising is available. I don't consider myself a "sap" as the article says just because my money is going to a corporation that is smart enough to avoid taxes. If the cruise corps had to pay U.S. taxes they would be forced to raise fares. I am thankful that Ted Arison took the risks to build his company. I also think it is awesome that Carnival provides thousands of jobs to people, some which are most likely from poor countries with little opportunity. The crew members that I have spoken with personally seem like grateful, hardworking people who sacrifice time with their families and personal comfort to give those at home a better life. The cruise industry has also created many jobs at ports-of-call in poor countries.

Personally, I would rather these companies get the benefit of the loophole than for the U.S. to squander money on lazy, ungrateful people and handouts to foreign countries.

Michael Walsh - November 2, 2011 2:09 PM

Hello,
No "Fair Share" of Taxes on Total Revenues Earned ! Major Ocean Polluters along with the US Navy, and Merchant ships etc. Will This Tax Loophole ever be Closed ? Heaven Help Us All !

Miya - January 29, 2012 2:09 PM

My son worked on one of Carnival Cruise vessels registered in Panama. He is a US citizen and his payroll stub shows a deductions for federal taxes. Where the heck did that money go??? Should he be expecting a W-2 to file through IRS or does he need to go through Panama for his return? Either way, he's entitled to a full refund.

I'm sure these questions need to be directly addressed to CCL or the IRS but before I throw myself into that frustrating process, I wanted to see if anyone else had any insights.

Incidentally, their hiring process is deceitful and working conditions deplorable to say the very least. I can go on and on about that alone but I'll stop here.

Thank you in advance for any advice and with the kindest of regards,

Miya.

Jazzmine - February 16, 2013 5:02 PM

My daughter is working on a Princess ship, federal tax is deducted but the W2 shows no social security or medicare being taken off. Anyone know why this is. Are cruise ships exempt from paying it?

frederick mattara - March 30, 2013 12:30 PM

it is not the vruise line that is corrupt; but the corrupt congress and senate and yes president that continues to give tax loopholes to their friends, families, business associates. the smell that comes from the politicians in washington would gag a maggot.
why no group have filed writ of mandamus on some of the smelly situations going on. i am retired but my wife works 66 hours a week so we can live. The tax man came to our home to suck more money out of us. Go after the tax evaders in switzerland etc . These blood suckers continue to tax us excessively. there are a ton of crazy laws. politics over the law immigration. wars why, bring in illegal aliens while americans are out of work, billions borrowed then given to dictatorships and demand we middle income americans pay.

G. Harp - May 23, 2013 2:38 PM

If the government is willing to give "loopholes" or ways to circumvent having to pay a full amount of taxes, then it is their prerogative. We must hire accountants to keep up with this stuff or many of us miss the opportunities. Now it never seemed right to me for the government to tax my wages. That is the money I worked hard for, the money my education got me, my negotiations and planning for my future, and yet the government gets 30% for nothing. I am all for a consumption tax so that everyone who is in our country pays for the protection and freedoms the USA provides while they are here...the streets and roadways...the everything else that they do not pay for because they just live here or are just visiting here but not plugged into our system.
And who says that 30% is a good number to tax us. There are over 100 ways the government taxes its people daily. Just what is our FAIR SHARE? With all the deductions and waivers, the fair share falls on the hard workers of our economy...MIDDLE CLASS mainly. Should everyone pay some kind of tax... absolutely! Corporations should be taxed less and in similar ways of consumption.

Valentin Angelov - August 25, 2013 5:11 PM

Reading all these comments and what the author wrote I realise that most of the people have no idea of cruise companies operations. Of course that those companies will register in other countries to avoid imposing taxes to a certain part of their profit. They have been ripped off in the form of docking taxes, which are thousands USD per hour and other charges, which are going in your cities coffins, as well as they employ not only people on board ships but have a vast operation ashore. All Carnival ships are supplied by USA suppliers does not matter where the ship is located in the world. Containers are shipped from USA all over the globe to reach the final destination. A ship inspected by USPH pays thousands of USD for just a 2 hours visit. I am really surprised how in USA most food places area not closed as they really do not meet the requirements of the USPH, but this is another story.
And yes to write all this I am pretty much familiar with the cruise service industry, not like the author who is looking for a sensation rather than being objective.

Gary - June 20, 2014 11:02 PM

Carnival takes advantage of all of its"allowable" IRC loopholes, like any company should. Only an unsavy business person would pass up these IRC "allowable" tax loopholes to volunteer the corporate tax rate. These shipping companies churn revenue off and not on U.S. shores.

I had an old client heavily review there options, prior to throwing it out the windows. I had a local tax attorney help them guage their options, prior to getting dupped out of potential millions in capital gains and gift tax's.

Regards,


KPMG

Brad Jones - August 10, 2014 1:59 AM

I commend the author for his postings.
Most people who posted their negative criticisms are too stupid to see that this model is not sustainable and is not fair to the millions of hard working Americans.
The company profits plenty and pays its mostly Indonesian servants aboard only a $50 salary per month and when you as a passenger pay the tip, which is actually added on to your bill, about 90% goes to these legal slaves and the company has the nerve to keep 10% for processing.
So, most employees are lucky to earn $500 per month.
They work 12 hours a day and if lucky get 1 day off, most say they work every day. They are exhausted.
If they are sick or injured, they are simply fired, no workers comp, no rights at all.

The ships have been notorious for horror stories, deaths, rapes, predators and burglaries , with passengers having little rights since the ships are registered internationally. Also, victims are blamed and information is covered up. Major cover ups to ensure a solid image.

There is a false sense of security upon boarding these.
Sad to read about the numerous deaths that necessarily occurred because a captain did not want to turn the ship back from a man overboard.
And look at the Concordia, complete criminal activity by the captain covering up and negligent.

In fact, there is little security on the ship.
Few Americans actually work. You might find 1 American, most are from Indonesia, India and Philippines and some from, Bosnia, Romania, Ukraine, Peru and Mexico.

Yes, there are some drunk and crazy passengers that the cruise ship cannot account for, but as a whole, overall, be careful if you take a cruise, and if you run into problems, probably better to evaluate what you do while on the ship and wait until you get in US water , just google the thousands of horror stories.

No shortage of stories for people being left in foreign countries and have to find their way back on their own dime in a 3rd world country where corruption is rampant for being a victim in a ship.


The entire model is flawed.

This is another Walmart business model, make billions, pay your employees nothing, pay top executives millions each per year and then use the excuse that you would have to raise your rates if you paid the legal slaves that work on your ship a decent wage.
Why not cut a small portion from the top, and pay your employees a fair wage, use the Timberland model.
Everyone could be happy and comfortable , but there are too many greedy people that don't believe in God, but money is their God!

In the end, I think reincarnation is real, and all of these greedy slave drivers will come back as slaves themselves.

Thank you to the author for sharing a wealth of information.

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