Tax Inequities: The Case of Foreign vs. U.S. Cruise Lines

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Currently, foreign cruise liners operate almost completely outside of the scope of the U.S. tax system, and this arguably has a discriminatory impact on U.S. cruise lines. Generally, if a foreign corporation is deemed to have a permanent establishment in the United States, they are subject to a tax on the portion of their income that is attributable to the U.S. For example, if a foreign clothing company, had just one small store in Miami where there could be “continuous and systematic” presence, it would be viewed to have a permanent establishment and taxed 30%. Since foreign cruise corporations fall into the category of “shipping,” the headquarters they have in the U.S. aren’t considered a permanent establishment. Therefore, the U.S. isn’t …show more content…

tax. Even, if the Panamanian company were to move it’s headquarters from Miami, it would likely still be considered to be engaged in a U.S. trade or business because there is continuous and systematic presence in the United States. For example, with 90% of the customers being U.S. citizens or residents, and daily docking at U.S. ports, these cruise ships would be perceived as if they still had an actual principal place of business. Viewing this income as being U.S. sourced and effectively connected with a U.S. trade or business would make the income subject to U.S. taxes at the same rate as other income, such as the corporate income tax rate is 35 percent. In conjunction with this tax, Senator Rockefeller’s bill planned to impose a 5 percent excise tax, which would be used to fund the infrastructure that the ships benefit from. The Rockefeller bill would impose this excise tax on gross income from cruises “embarking or disembarking passengers in the U.S.” Generally, cruises that had a majority of passengers embark or disembark in the U.S. would have all of its gross income from that voyage would be subject to excise tax. However, for cruises that call at a U.S. port, but not actually embark or disembark a majority of the passengers in the U.S., only half of the gross income from that voyage would be subject to the tax. According to Sen. Rockefeller, the excise tax is similar to passenger taxes in the aviation industry and gas tax for motor

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