Cruising “Off Shore”


Cruising the high seas has become an increasingly popular way to travel, with over 14 million Americans cruising in 2010. Cruise fans love the convenience of unpacking just once and letting a floating resort take them from one glamorous destination to another. But sometimes, being stranded on the high seas is not convenient or glamorous, as 4,200 passengers recently found out when the Carnival Triumph lost power in the middle of the Gulf of Mexico. Stories of food shortages and sewage disasters hit land almost immediately.  

Carnival of course immediately went into PR emergency mode, providing full refunds for cruise and transportation costs, plus $500 in cash, plus a credit for a free future cruise (wonder how many will take them up on that offer), all in an effort to appease angry passengers.

But it turns out the Triumph's passengers aren't the only ones who are less-than-delighted with Carnival - our friends at the IRS aren't fans either.  

Carnival takes a lot of help from the government. As the New York Times reported, "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."  

Those government subsidies have helped Carnival become the biggest cruise line in the world. The company's "fun ships" earned $11.3 billion in profit over the last five years. So, how much did the IRS get in exchange for all that government help? Well, Carnival's total "cash taxes paid," including federal, state, local, and even foreign taxes, add up to ameasly 1.1%!  

How does Carnival do it? Mainly through "offshoring," a popular strategy for many corporations. Carnival's executives work out of offices in Miami, and the holding company's stock trades on the New York Stock Exchange. But the operating company is incorporated in Panama, and the actual ships are "flagged" in Panama or the Bahamas.  

Offshoring has been so successful that Carnival's founder Ted Arison offshored himself — he renounced his U.S. citizenship and moved back to his native Israel to avoid U.S. estate tax back in 1990 (unfortunately, at least for his heirs, he died nine months before achieving the 10-year absence from the U.S. that was necessary to avoid the tax).  

Carnival is hardly the only U.S. corporation to use perfectly legal strategies to cut its tax. The Times reports that over the last five years, Boeing has paid just 4.5%, Southwest Airlines paid 6.3%, and Yahoo paid 7% (strategies include making outsized contributions to pension funds and taking advantage of tax breaks for research and development). Carnival's 1.1% is the clear winner, however.  

We can't imagine anything much worse than spending five days in the open sea with no power to prepare proper food or run the sewage system. But paying more tax than you legally have to is not a boatload of fun, either. When we represent you, we make sure you pay no more taxes than you rightfully owe!