2016 Annual Report for Norwegian Cruiseline Holdings - 26

As a result of any ship-related or other incidents, litigation claims, enforcement actions and regulatory actions and investigations, including, but not
limited to, those arising from personal injury, loss of life, loss of or damage to personal property, business interruption losses or environmental damage
to any affected coastal waters and the surrounding area, may be asserted or brought against various parties, including us and/or our cruise brands. The
time and attention of our management may also be diverted in defending such claims, actions and investigations. Subject to applicable insurance
coverage, we may also incur costs both in defending against any claims, actions and investigations and for any judgments, fines, civil or criminal
penalties if such claims, actions or investigations are adversely determined.
Risks Related to the Regulatory Environment in Which We Operate
Future changes in applicable tax laws, or our inability to take advantage of favorable tax regimes, could increase the amount of taxes we must pay.
We believe and have taken the position that our income that is considered to be derived from the international operation of ships as well as certain
income that is considered to be incidental to such income ("shipping income"), is exempt from U.S. federal income taxes under Section 883, based upon
certain assumptions as to shareholdings and other information as more fully described in "Item 1-Business-Taxation." The provisions of Section 883
are subject to change at any time, possibly with retroactive effect.
We believe and have taken the position that substantially all of our income derived from the international operation of ships is properly categorized as
shipping income and that we do not have a material amount of non-qualifying income. It is possible, however, that a much larger percentage of our
income does not qualify (or will not qualify) as shipping income. Moreover, the exemption for shipping income is only available for years in which
NCLH will satisfy complex stock ownership tests or the publicly traded test under Section 883 as described in "Item 1-Business- Taxation-
Exemption of International Shipping Income under Section 883 of the Code." There are factual circumstances beyond our control, including changes in
the direct and indirect owners of NCLH's ordinary shares, which could cause us or our subsidiaries to lose the benefit of this tax exemption. Finally, any
changes in our operations could significantly increase our exposure to either the Net Tax Regime or the 4% Regime (each as defined in "Item 1-
Business-Taxation"), and we can give no assurances on this matter.
If we or any of our subsidiaries were not to qualify for the exemption under Section 883, our or such subsidiary's U.S.-source income would be subject
to either the Net Tax Regime or the 4% Regime (each as defined in "Item 1- Business- Taxation). As of the date of this filing, we believe that NCLH
and its subsidiaries will satisfy the publicly traded test imposed under Section 883 and therefore believe that NCLH will qualify for the exemption under
Section 883. However, as discussed above, there are factual circumstances beyond our control that could cause NCLH to not meet the stock ownership
or publicly traded tests. Therefore, we can give no assurances on this matter. We refer you to "Item 1-Business-Taxation."
We may be subject to state, local and non-U.S. income or non-income taxes in various jurisdictions, including those in which we transact business, own
property or reside. We may be required to file tax returns in some or all of those jurisdictions. Our state, local or non-U.S. tax treatment may not
conform to the U.S. federal income tax treatment discussed above. We may be required to pay non-U.S. taxes on dispositions of foreign property or
operations involving foreign property that may give rise to non-U.S. income or other tax liabilities in amounts that could be substantial.
The various tax regimes to which we are currently subject result in a relatively low effective tax rate on our worldwide income. These tax regimes,
however, are subject to change, possibly with retroactive effect. For example, legislation has been proposed in the past that would eliminate the benefits
of the exemption from U.S. federal income tax under Section 883 and subject all or a portion of our shipping income to taxation in the U.S. Moreover,
we may become subject to new tax regimes and may be unable to take advantage of favorable tax provisions afforded by current or future law including
exemption of branch profits and dividend withholding taxes under the U.S. - U.K. Income Tax Treaty on income derived in respect of our U.S.-flagged
operation.
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
Some environmental groups have lobbied for more extensive oversight of cruise ships and have generated negative publicity about the cruise industry
and its environmental impact. Increasingly stringent federal, state, local and international laws and regulations on environmental protection and health
and safety of workers could affect our operations. The U.S. Environmental Protection Agency, the IMO (a United Nations agency with responsibility for
the safety and security of shipping and the prevention of marine pollution by ships), the Council of the European Union and individual countries and
U.S. states are considering, as well as implementing, new laws and rules to manage cruise ship operations and waste. In addition, many aspects of the
cruise industry are subject to governmental regulation by the U.S. Coast Guard as well as international treaties such as SOLAS, an international safety
regulation, MARPOL, an international environmental regulation, and STCW and its conventions in ship manning.
The U.S. and various state and foreign government and regulatory agencies have enacted or are considering new environmental regulations and policies,
including those aimed at reducing the threat of invasive species in ballast water, requiring the use of low-sulfur fuels, increasing fuel efficiency
requirements and further restricting emissions, including those of green-house gases, and improving sewage and greywater-handling capabilities.
Compliance with such laws and regulations may entail significant expenses for ship modification and changes in operating procedures which could
adversely impact our operations as well as our competitors' operations.
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Table of Contents for the Digital Edition of 2016 Annual Report for Norwegian Cruiseline Holdings