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Senator wants answers on Carnival's repeated mishaps

Millions of U.S. tax dollars have been spent rescuing just two Carnival cruise ships, even as the company claims it's exempt from U.S. federal income taxes.

In a scathing letter sent last week, Senate Commerce Committee chairman Jay Rockefeller, D-W.V., asked Carnival CEO Micky Arison whether his company will reimburse the Coast Guard and U.S. Navy for the cost of responding to two most recent incidents.

Those mishaps involved the Carnival Splendor and the Carnival Triumph. According to information provided by the Coast Guard and the Navy, the federal agencies spent more than $3.4 million tax dollars responding to the Splendor incident. The Coast Guard spent $779,914.26 responding to the Triumph.

When added to other incidents on record, the cost to U.S. taxpayers grows exponentially. There have been more than 90 U.S. Coast Guard "Casualty Investigations" on Carnival Corporation-owned cruise ships in just the past five years, according to Coast Guard records. That's nearly twice the number of the rest of the industry combined.


The Carnival incidents include "groundings, collisions, allusions, engine room and generator fires, propulsion and electrical system failures that have left ships adrift at sea, and other critical onboard system failures," according to Rockefeller's letter to Arison. "Given that you reportedly pay little or nothing in federal taxes, do you intend to reimburse the Coast Guard and the Navy...?"

Because Carnival is incorporated in Panama, the company claims various tax exemptions. Carnival's SEC filings state: "We believe that our U.S. source income and the income of our ship-owning subsidiaries, to the extent derived from, or incidental to, the international operation of a ship or ships, is currently exempt from U.S. federal income and branch profits tax." The company adds that it also qualifies for tax exemptions under "bilateral U.S. income tax treaties."

The largest cruise company in the world, Carnival has 100 cruise ships and calls itself "among the most profitable and financially strong leisure travel companies in the world." One analysis presented at a Senate hearing showed that Carnival paid just 1.1 percent in total corporate taxes on $11.5 billion dollars in profits over five years.


A Carnival spokesman told CBS News: "At the international level, there is recognition that it is impossible to develop a tax system by which the income of a shipping company is fairly apportioned and countries typically impose head taxes and other types of taxes in lieu of income taxes. Virtually all jurisdictions where our ships call impose taxes and/or fees based on guest counts, ship tonnage, ship capacity or some other measure. These taxes are included in our cost of operations."

Carnival's business model is not unusual in the cruise ship industry, or even among corporate giants. An analysis by the Citizens for Tax Justice showed that ten corporations with $1.5 trillion in offshore corporate profits paid little or no tax to any government.

Four Carnival ships have reported problems in just the past month.

Over the weekend, the Carnival Legend suffered propulsion system problems that forced it to cancel a scheduled stop on Grand Cayman.

Last week, the Carnival Dream had a malfunction with an emergency diesel generator that led to elevator problems and overflowing toilets while docked in St. Maarten in the Caribbean with thousands of people on board.

The Carnival Elation recently had problems with a part that's linked to steering and propulsion.

And in February, an engine room fire left the Carnival Triumph adrift with more than four thousand people on board with overflowing toilets and no air conditioning.

"Despite the alarming number of onboard fires, major systems malfunctions and human errors that have occurred on Carnival's ships since 2008, I see no evidence that the company has undertaken any meaningful course of corrective action to improve its safety record," Rockefeller stated in his letter to Arison.

Following the tragedy aboard Carnival's Costa Concordia Italian cruise ship in January 2012 in which 32 people died, Carnival announced a "comprehensive audit and review of all safety and emergency response procedures across its ten brands to identify lessons learned and best practices." The company says that as a result, it enhanced safety and security procedures.

Rockefeller's letter to Carnival comes as his fellow Democrat, Sen. Chuck Schumer, D-N.Y., slammed the cruise industry, calling it "the wild west of the traveling industry."

Schumer called current regulations "toothless" and demanded a new "bill of rights" for cruise passengers.

"The bill of rights, based on what we have done with the airline industry, will ensure that passengers are not forced to live in Third World conditions or put their lives at risk when they go on vacation," Schumer said Sunday.