Overview
On July 12, 2024, the Official Gazette of the Netherlands, the Staatscourant, published amendments to the Tax Arrangement between the Netherlands and Curaçao. These changes, effective from January 1, 2025, aim to eliminate double taxation without creating loopholes for non-taxation or reduced taxation, aligning with the OECD’s Base Erosion and Profit Shifting (BEPS) minimum standards.
Background
Curaçao and the Netherlands are autonomous countries within the Kingdom of the Netherlands. The existing Tax Arrangement, in place since December 2015, seeks to prevent double taxation of income. The latest amendments are part of ongoing efforts to align with the OECD’s BEPS framework, to which both countries are committed.
Key Changes
1. Expanded Preamble
The preamble now explicitly states the mutual goal of eliminating double taxation while preventing opportunities for non-taxation or reduced taxation. This articulation reinforces the commitment of both countries to uphold fair taxation principles.
2. Collective Investment Vehicles (CIVs)
The amendments introduce provisions for CIVs. Investors in entities recognized as transparent for tax purposes in both jurisdictions, such as limited partnerships (“commanditaire vennootschap”) and mutual funds (“fonds voor gemene rekening”), can now benefit from the tax treaty between their country of residence and the source jurisdiction. This allows managers of CIVs to apply the treaty on behalf of investors, enhancing efficiency and clarity for investors.
3. Updated Residence Article
The residence article has been revised to align with Article 4 of the OECD model treaty. This update explicitly recognizes pension funds as tax residents and acknowledges corporations under Curaçao’s territorial system as tax residents. Additionally, dual-resident corporations now have access to the mutual agreement procedure, including arbitration.
4. Exclusion of Curaçao Investment Companies (CICs)
Curaçao Investment Companies, which are taxed at 0%, are excluded from the benefits of the dividend article if the dividend income arises from passive investments like securities, deposits, or other financial instruments. This exclusion prevents tax treaty benefits from being exploited through passive investment structures.
5. Introduction of the Principal Purpose Test (PPT)
A Principal Purpose Test (PPT) has been introduced, supplementing the existing Limitation of Benefits (LOB) clause in the dividend article. The PPT aims to prevent treaty abuse by ensuring that the primary purpose of transactions is not to gain treaty benefits. Taxpayers can provide rebuttal evidence, and there is a mandatory consultation between the competent authorities of both countries before the PPT is applied. If benefits are denied under the PPT, taxpayers can initiate a mutual agreement procedure with the option for arbitration or judicial review.
6. Enhanced Mutual Agreement Procedure (MAP)
The mutual agreement procedure has been slightly amended to improve taxpayer access. Taxpayers can now approach both tax authorities and must request arbitration in writing. This change ensures a clearer and more streamlined process for resolving tax disputes.
Effective Date
The amendments were officially enacted on July 13, 2024, and will come into effect on January 1, 2025. This provides a transitional period for taxpayers and professionals to adjust to the new rules.
Conclusion
These amendments to the Tax Arrangement between the Netherlands and Curaçao reflect a commitment to international tax standards and the prevention of tax abuse. For tax professionals and investors, these changes embolden the importance of staying informed and compliant with evolving tax regulations. The inclusion of new provisions for CIVs, updates to residence criteria, and the introduction of the PPT represent important steps towards maintaining a fair and efficient tax system within the Kingdom of the Netherlands.
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