The practice of registering ships in countries with laxer tax regulations, known as tax havens, has been a common strategy among major cruise companies. Companies such as Royal Caribbean Cruises, Norwegian Cruise Line and Carnival Corporation, although headquartered in the United States, are incorporated in foreign jurisdictions. This allows them to take advantage of Section 883 of the US Internal Revenue Code, which exempts foreign corporations engaged in international ship or aircraft operations from taxation. As a result, these companies have maintained effective tax rates below 2% for the past five years.
The Cruise Lines International Association (CLIA) has responded to Lutnick's statements, saying that cruise lines already contribute significantly to the US economy. According to CLIA, cruise lines pay approximately $2.5 billion in taxes and duties in the US, representing 65 per cent of the total taxes paid by cruise lines globally.
Despite these claims, the announcement of possible tax changes has had an immediate impact on the stock market. Shares of the major cruise lines experienced significant declines following Lutnick's remarks. Carnival Corporation saw a 5.9 per cent decline in its shares, while Royal Caribbean and Norwegian Cruise Line recorded declines of 7.6 per cent and 4.9 per cent, respectively.
Industry analysts point out that while this is not the first time tax reform has been proposed for cruise lines, implementing significant changes could face legal and practical challenges. The current regulatory structure is underpinned by international treaties and agreements that could complicate the implementation of new tax policies. In addition, companies argue that while they pay low corporate tax rates, they contribute in other ways, such as by paying port fees and generating employment in the US.
The Trump administration has stated its commitment to review and adjust tax policies to ensure fair and equitable competition. This approach is part of a series of measures aimed at reforming the country's tax and trade system, seeking to prioritise national economic interests and ensure that all businesses operating in the US contribute adequately to the public purse.
The proposal to tax cruise companies operating under foreign flags represents an effort by the Trump administration to close tax loopholes and ensure that these companies contribute their fair share in taxes. While the initiative has generated mixed reactions and influenced stock market performance, it reflects a clear intention to reform aspects of the tax system that have allowed certain corporations to minimise their US tax obligations.
