Sen. Jay Rockefeller dropped a bomb on the cruise lines on Thursday by threatening to close certain "Tax Loopholes" that have allowed the cruise lines to get away with no paying full corporate tax every year.
Apparently, the cruise lines got a copy of the proposed bill and are looking it over. It has not been submitted to committee yet (as far as I know) - no copies of it are out. But the Miami Herald is also reporting he wants a 5% excise tax on all passengers leaving or entering the US by cruise ship.
Obviously - this could change the whole course of the cruise industry. But we don't know if it will get far before Rockefeller retires in 2014 at the end of his term That gives him (and Congress) over a year to push this through. What remains to be seen is whether other congress people will agree this is needed.
These were laws created by legislators - all the lines did was apply the laws. I think the codes in reference are here:
IRS Issues Final Regulations with respect to Reciprocal Exemption for International Shipping and Air Transportation - Carter Ledyard & Milburn LLP
IRS Issues Final Regulations with respect to Reciprocal Exemption for International Shipping and Air Transportation
Code Section 883: The "Reciprocal Exemption"
Income of a foreign corporation from the international operation of ships or aircraft, or the rental thereof, is exempted from U.S. taxation under Section 883 of the Internal Revenue Code of 1986, as amended (the "Code"), if an equivalent exemption is provided for U.S. corporations by the country in which the foreign corporation is organized
. (The country of the ship’s or aircraft’s registration is no longer directly relevant to U.S. income taxation.)
b. Eligibility for Exemption
(i) The Foreign Country’s Reciprocal Exemption
The foreign corporation deriving international transportation income must be organized in a country that provides a reciprocal exemption to U.S. corporations. A foreign country is considered to provide a reciprocal exemption for purposes of Section 883 if (1) it does not impose an income tax in general, (2) it provides an exemption by domestic law, or (3) the United States and such foreign country have established the exemption specifically for this purpose, through an agreement or the exchange of diplomatic notes.
In Revenue Ruling 2001-48, the Internal Revenue Service published a list of countries that have submitted documentation to the IRS establishing that they provide a reciprocal exemption. The ruling does not purport to be exclusive. Moreover, it may be out of date, and before relying on it a foreign corporation must confirm that its home country has not repealed or amended its exemption.
An exemption from U.S. income tax may also be provided pursuant to a tax treaty between the United States and the country in which a foreign corporation is organized. To claim an exemption under a tax treaty, a foreign corporation must claim treaty benefits under Section 894 of the Code, rather than Section 883.
(ii) Income by Category
To claim the reciprocal exemption, foreign corporations must break down their income into one or more categories of income and provide proof that their home country either does not impose an income tax or offers an exemption to U.S. corporations with respect to income in the same category. The following are the categories of income for which the exemption may be claimed
, so long as the home country offers the reciprocal exemption in the same category for the same type of transportation, by water or air
: (a) income from the carriage of cargo and passengers; (b) time or voyage (full) charter income; (c) bareboat charter income; (d) incidental bareboat charter income; (e) incidental container‑related income; (f) any other income that is incidental to the business of operating ships
or aircraft; or (g) gains of the operator from the sale, exchange or other disposition of a ship, aircraft, container or related equipment or other moveable property used by that operator in international operation. Rev. Rul. 2001-48 shows each category of international transportation income that the countries on the list have exempted for U.S. corporations.