Important Developments for Netherlands - Curaçao Tax Structures Offers Opportunities
Until 2010 Curacao used to be part of the Netherlands Antilles. Now Curacao is an independent country within the Kingdom of the Netherlands. The Netherlands Antilles (and therefore Curacao) was used frequently in the past for tax planning purposes (Dutch sandwich structures). However, due to the introduction of an 8.3% withholding tax on dividends from the Netherlands to the Antilles these structures have become less attractive. In more recent times holding companies in Curacao were used to own Dutch Co-op entities with the aim to eliminate (Dutch) dividend withholding tax. New developments in the relation Curacao and the Netherlands may offer new opportunities for tax planning. Taxand Netherlands and Taxand Curacao considers the likely impact of this change on investment between the Netherlands and Curacao.
Two Important developments:
1) The first one is the outcome of a ruling of the European Court of Justice ("ECJ"): On 23 December 2011, the Dutch Supreme Court requested an EU prejudicial ruling in two cases in which a Dutch company distributed a dividend payment to its parent company in the Netherlands Antilles (e.g. Curaçao). Pursuant article 11 (3) of the current Tax Regulations for the Kingdom ("TRK"), The 8.3% dividend tax was withheld by the Netherlands. In both cases the tax payers argued that the levy of dividend withholding tax is in breach with the EU ‘freedom of capital'. Compared to other EU freedoms, the 'freedom of capital' does apply to non EU third countries.
2) Secondly, on 12 December 2011 the Netherlands and Curaçao reached an agreement on the main issues regarding a new TRK in order to prevent double taxation between both countries.
Potential impact of EU case law on existing Netherlands-Curacao structures
Pursuant to the current TRK a 8.3% withholding tax on dividends has to be withheld by the Netherlands on dividend distributions to Curacao. Taxpayers have argued in pending court cases that the levy of withholding tax on dividends is in breach with the EU 'freedom of capital'.
The Court of Appeal previously ruled that the Netherlands Antilles could not qualify as a 'third country' for which the 'freedom of capital' could apply. However, based on the ruling of the ECJ in the Prunus-case (C-384/09) the Dutch Supreme Court has now questioned whether this is indeed correct and requested for two prejudicial rulings:
- Could the Netherlands Antilles, which can be considered as an Overseas Country and Territory ("OCT") of the Netherlands, indeed qualify as a third country to which the 'freedom of capital'applies?
- If the Netherlands Antilles can be considered as a third country, does the stand-still clause of article 64 TFEU apply?
Pursuant to the stand-still clause, an EU Member State is allowed to maintain a specific limitation on the freedom of capital in the event this limitation already existed on 31 December 1993. The TRK already existed on 31 December 1993, however, various amendments to the relevant articles of the TRK were made in 2002, resulting in a different effective tax rate on dividend distributions made by a Dutch company to its parent company in the Netherlands Antilles. Therefore the stand-still clause may not be applicable. The outcome of the prejudicial rulings is not clear at the moment.
Should the ECJ rule that (i) the freedom of capital indeed does apply to the own OCTs of EU Member States and (ii) the standstill-clause has no impact due to the TRK amendments of 2002, the Netherlands was not allowed to levy any dividend withholding tax.
New TRK between the Netherlands and Curaçao
On 12 December 2011, the Netherlands and Curacao reached an agreement on the main issues regarding a new TRK in order to prevent double taxation between both countries. The old TRK dates from 1964 but has been amended several times in the past. It is intended that the new TRK can be applied as from 1 January 2013. The actual text of the TRK is not yet available but the main topics are:
- The general dividend withholding tax rate pursuant to the new TRK will be 15%
- For "active" companies a 0% dividend withholding tax rate for qualifying participation can apply
- For existing participations of at least 25% which do not qualify for the 0% dividend withholding tax rate, there is a different applicable regime until 2019, with a withholding tax rate of 5% for qualifying participation
- Anticipating on the new TRK, the anti-abuse clause mentioned in article 35 of the current TRK (with regard to the taxation of the substantial shareholding) will not apply in 2012
- The new TRK will contain a clause on exchange of information on tax matters conform OECD principles.
- Pending the outcome of this ECJ ruling, companies who are confronted with dividend withholding tax on dividend distributions from the Netherlands to the Netherlands Antilles, should consider filing a timely objection against the levy of this dividend withholding tax, taking the position that the payment thereof is incompatible with the EU freedom of capital
- The new TRK may offer opportunities to reduce or eliminate (Dutch) dividend withholding tax. Please note however that strict conditions will apply to the application of the 0% dividend withholding tax rate.
- There have been discussions whether the Dutch substantial shareholding ("aanmerkelijk belang") regime could apply to current Coop structures which have a Curaçao entity as the parent entity under the anti-abuse clause in the current TRK. It now seems that the Dutch tax authority will not apply this anti-abuse clause in 2012 (and possibly until 2019).
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