2016 Annual Report for Norwegian Cruiseline Holdings - 15

The SOLAS requirements are amended and extended by the IMO from time to time. For example, the International Port and Ship Facility Code ("ISPS
Code") was adopted by the IMO in December 2002 with the goal of strengthening maritime security by placing new requirements on governments, port
authorities and shipping companies.
Amendments to SOLAS required that ships constructed in accordance with pre-1974 SOLAS requirements install automatic sprinkler systems. IMO
adopted an amendment to SOLAS which requires partial bulkheads on stateroom balconies to be of non-combustible construction. The SOLAS
regulation implemented Long-Range Identification and Tracking. All of our ships are in compliance with the requirements of SOLAS as amended
and/or as applicable to the keel-laying date.
In addition to the requirements of the ISPS Code, the U.S. Congress enacted the Maritime Transportation Security Act of 2002 ("MTSA") which
implements a number of security measures at ports in the U.S. including measures that apply to ships registered outside the U.S. while docking at ports
in the U.S. The U.S. Coast Guard has published MTSA regulations that require a security plan for every ship entering the territorial waters of the U.S.,
provide for identification requirements for ships entering such waters and establish various procedures for the identification of crew members on such
ships. The Transportation Workers Identification Credential is a U.S. requirement for accessibility into and onto U.S. ports and U.S.-flagged ships.
Maritime-Labor
In 2006, the International Labor Organization ("ILO"), an agency of the United Nations that develops and oversees international labor standards,
adopted a new Consolidated Maritime Labor Convention ("MLC 2006"). MLC 2006 contains a comprehensive set of global standards based on those
that are already found in 68 maritime labor Conventions and Recommendations adopted by the ILO since 1920. MLC 2006 includes a broad range of
requirements, such as a broader definition of a seafarer, minimum age of seafarers, medical certificates, recruitment practices, training, repatriation,
food, recreational facilities, health and welfare, hours of work and rest, accommodations, wages and entitlements. MLC 2006 added requirements not
previously in effect, in the areas of occupational safety and health. MLC 2006 became effective in certain countries commencing August 2013. The
Standard of Training Certification and Watch Keeping for Seafarers ("STCW"), as amended, establishes minimum standards relating to training,
certification and watchkeeping for our seafarers.
Financial Requirements
The Federal Maritime Commission ("FMC") requires evidence of financial responsibility for those offering transportation on passenger ships operating
out of U.S. ports to indemnify passengers in the event of non-performance of the transportation. Accordingly, each of our three brands are required to
maintain a $30.0 million third-party performance guarantee in respect of liabilities for non-performance of transportation and other obligations to
passengers. The guarantee requirements are subject to additional consumer price index-based adjustments. Also, our brands have a legal requirement to
maintain a security guarantee based on cruise business originated from the U.K. As of December 31, 2016, approximately British Pound Sterling 10.5
million was in place as a security guarantee. We also are required to establish financial responsibility by other jurisdictions to meet liability in the event
of non-performance of our obligations to passengers from those jurisdictions.
From time to time, various other regulatory and legislative changes have been or may in the future be proposed that may have an effect on our
operations in the U.S. and the cruise industry in general.
For information regarding risks associated with our compliance with legal and regulatory requirements, see Part I Item 1A-Risk Factors in this annual
report on Form 10-K, including the risk factor titled "We are subject to complex laws and regulations, including environmental laws and regulations,
which could adversely affect our operations and any changes in the current laws and regulations could lead to increased costs or decreased revenue."
Taxation
U.S. Income Taxation
The following discussion is based upon current provisions of the Internal Revenue Code (the "Code"), U.S. Treasury regulations, administrative rulings
and court decisions, all of which are subject to change, possibly with retroactive effect. Changes in these authorities may cause the tax consequences to
vary substantially from the consequences described below.
Exemption of International Shipping Income under Section 883 of the Code
Under Section 883 of the Code ("Section 883") and the related regulations, a foreign corporation will be exempt from U.S. federal income taxation on
its U.S.-source income derived from the international operation of ships ("shipping income") if: (a) it is organized in a qualified foreign country, which
is one that grants an "equivalent exemption" from tax to corporations organized in the U.S. in respect of each category of shipping income for which
exemption is being claimed under Section 883; and (b) either: (1) more than 50% of the value of its stock is beneficially owned, directly or indirectly, by
qualified shareholders, which includes individuals who are "residents" of a qualified foreign country; (2) one or more classes of its stock representing, in
the aggregate, more than 50% of the combined voting power and value of all classes of its stock are "primarily and regularly traded on one or more
established securities markets" in a qualified foreign country or in the U.S. (the "publicly traded test"); or (3) it is a "controlled foreign corporation" (a
"CFC") for more than half of the taxable year and more than 50% of its stock is owned by qualified U.S. persons for more than half of the taxable year
(the "CFC test"). In addition, U.S. Treasury Regulations require a foreign corporation and certain of its direct and indirect shareholders to satisfy
detailed substantiation and reporting requirements.
NCLH is incorporated in Bermuda, a qualified foreign country which grants an equivalent exemption, and NCLH meets the publicly traded test because
its ordinary shares are primarily and regularly traded on the NASDAQ Global Select Market, which is considered to be an established securities market
in the U.S. Therefore, we believe that NCLH qualifies for the benefits of Section 883.
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Table of Contents for the Digital Edition of 2016 Annual Report for Norwegian Cruiseline Holdings