By Sam Logterman
The current coronavirus epidemic has affected businesses across the United States. As the economy remains shuttered for an increasingly extended period of time, the United States Congress will have to determine which industries to prop up and which ones to let succeed or fail on their own.
One of the industries under the most scrutiny is the cruise industry. Proponents of denying a bailout to the cruise industry have a variety of arguments in support of their cause. One of which is the fact that almost all cruise ships sail under a flag other than that of the United States, so the tax impact of a failing cruise industry would be negligible on the United States.
If you’ve ever taken a cruise, you’ve most likely noticed that the ship you’re sailing on is based somewhere outside of the United States. For example, Carnival Cruises is registered in Panama, Royal Caribbean is registered in Liberia, and Norwegian is registered in Bermuda, a British territory. All three of these locations are listed on various tax haven lists and, by registering in these countries, cruise companies are able to reduce the amount of taxes they’d pay had they been registered in the United States. In the period from 2011-2015, Carnival reported net profits of $7.29 billion but paid only $44 million in US taxes, less than 1% per year.
Sections in the U.S. Tax Code also incentivize foreign registration and reduce the amount of taxes cruise ships are required to pay. Section 883 of the Internal Revenue Code exempts income earned by foreign corporations for the “international operation of a ship or ships” so long as their country of residence extends the same protection to U.S. ships. While this law was originally established to promote international trade, the rise of the cruise industry combined with the fact that U.S. law allows establishment of tax residency solely through place of incorporation has created a tax loophole the size of, well, a cruise ship.
It’s worth mentioning that talks of bailing out the cruise industry have been one-sided, as Trump has brought up the possibility while none of the cruise companies have actually requested any assistance (at least publicly). However, if Trump decides to act on his own suggestion, the U.S. economy would be well served if he eliminated loopholes like Section 883 first.
 Jordan Weissman, The Very Specific Reason We SHouldn’t Bail Out the Cruise Industry, Slate (Mar. 23, 2020), https://slate.com/business/2020/03/cruise-industry-bailout-no-way.html.
 Ronny Rojas & Maye Primera, Cruising, A Trip Far From U.S. Law, Univision Noticias, http://huelladigital.univisionnoticias.com/cruceros-vacaciones-en-aguas-de-nadie/historia-principal/index-lang=en.html.
 26 U.S.C. §883(a)(1).
 Alex M. Parker, Cruise Line Tax Exemption Under Fire as Trump Floats Bailout, Law 360 (Mar. 18, 2020), https://www.law360.com/tax-authority/articles/1254535/cruise-line-tax-exemption-under-fire-as-trump-floats-bailout.