2017 Annual Report for Norwegian Cruiseline Holdings - 16

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 were primarily and regularly traded on the Nasdaq until December 18, 2017 and have been primarily and
regularly traded on the New York Stock Exchange ("NYSE") since December 19, 2017. Both the Nasdaq and the NYSE are considered to be
established securities markets in the U.S. Therefore, we believe that NCLH qualifies for the benefits of Section 883.
We believe and have taken the position that substantially all of NCLH's income, including the income of its ship-owning subsidiaries, is
roperly categorized as shipping income, and that we do not have a material amount of non-qualifying income. It is possible, however, that the
IRS interpretation of shipping income could differ from ours and that a much larger percentage of our income does not qualify (or will not
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qualify)
as shipping income. Moreover, the exemption for shipping income is only available for years in which we will satisfy complex tests
under Section 883. There are factual circumstances beyond our control, including changes in the direct and indirect owners of NCLH's
ordinary shares, which could cause NCLH or its subsidiaries to lose the benefit of the exemption under Section 883. Further, any changes in
our operations could significantly increase our exposure to taxation on shipping income, and we can give no assurances on this matter.
Under certain circumstances, changes in the identity, residence or holdings of NCLH's direct or indirect shareholders could cause NCLH's
ordinary shares not to be regularly traded on an established securities market within the meaning of the regulations under Section 883.
Therefore, as a precautionary matter, NCLH has provided protections in its bye-laws to reduce the risk of such changes impacting our ability
to meet the publicly traded test by prohibiting any person, other than the Sponsors, from owning, directly, indirectly or constructively, more
than 4.9% of NCLH's ordinary shares unless such ownership is approved by NCLH's Board of Directors (the "4.9% limit"). Any outstanding
shares held in excess of the 4.9% limit will be transferred to and held in a trust.
For U.S. federal income tax purposes, Regent and its non-U.S. subsidiaries are disregarded as entities separate from their immediate foreign
arent (PCH) and Oceania Cruises is treated as a corporation. For 2015, 2016 and 2017 both Regent and Oceania Cruises relied on NCLH's
ability to meet the requirements necessary to qualify for the benefits of Section 883 as discussed above.
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Taxation of International Shipping Income Where Section 883 of the Code is Inapplicable
Unless exempt from U.S. federal income taxation, a foreign corporation is subject to U.S. federal income tax in respect of its "shipping
income" that is derived from sources within the U.S. If we fail to qualify for the exemption under Section 883 in respect of our U.S.-sourced
shipping income, or if the provision was repealed, then we will be subject to taxation in the U.S. on such income.
Generally, "shipping income" is any income that is derived from the use of vessels, from the hiring or leasing of vessels for use on a time,
voyage or Bareboat Charter basis or from the performance of services directly related to those uses. For these purposes, shipping income
attributable to transportation that begins or ends, but that does not both begin and end, in the U.S., which we refer to as "U.S.- source shipping
income," will be considered to be 50% derived from sources within the U.S.

Table of Contents for the Digital Edition of 2017 Annual Report for Norwegian Cruiseline Holdings