Netherlands enacts amendments to Tax Arrangement with Curacao

On 12 July 2024, the amendments to the Tax Arrangement between the Netherlands and Curaçao were published in the Staatscourant, the Official Gazette of the Netherlands. These changes are part of the two countries' efforts to eliminate double taxation without creating opportunities for non-taxation.

Background

Curaçao and the Netherlands are autonomous countries within the Kingdom of the Netherlands. The Tax Arrangement between these countries, in effect since December 2015, is designed to prevent double taxation of income. The amendments to the Tax Arrangement are intended to align with the minimum standard set by the Organisation for Economic Co-operation and Development (OECD), which both the Netherlands and Curaçao have agreed to as Members of the Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

Key changes

The most important changes to the Tax Arrangement can be summarized as follows:

• The preamble has been expanded to articulate the shared intention of both countries to eliminate double taxation without creating opportunities for non-taxation or reduced taxation.

• A provision for Collective Investment Vehicles has been added. Investors in entities recognized as transparent for tax purposes in both the Netherlands and Curaçao, such as limited partnerships (in Dutch: "commanditaire vennootschap") or mutual funds (in Dutch: "fonds voor gemene rekening"), may utilize the tax treaty between their country of residence and the source jurisdiction. The Tax Arrangement allows the managers of these Collective Investment Vehicles to apply the treaty on behalf of the investors, creating more efficiency for investors through the vehicles.

• The residence article has been updated to be consistent with Article 4 of the OECD model treaty, specifically mentioning pension funds as tax residents and recognizing corporations under the Curaçao territorial system as tax resident. The amendments also make the mutual agreement procedure, including arbitration, available to dual-resident corporations.

• Curaçao Investment Companies (CICs), which are subject to 0% taxation, have been excluded from the benefits of the dividend article to the extent the dividend income results from passive investment, such as investments in securities, deposits, financial instruments, or other types of passive investments.

• A Principal Purpose Test (PPT) (minimum standard) has been introduced, alongside the Limitation of Benefits Test (LOB) in the dividend article. The PPT includes an option for taxpayers to provide rebuttal evidence and requires consultation between the competent authorities of both countries before application. Taxpayers may initiate a mutual agreement procedure with arbitration or judicial review if the competent authority denies the benefits based on the PPT.

• The mutual agreement procedure (minimum standard) has been amended slightly to allow taxpayers to approach both tax authorities and to require taxpayers to request arbitration in writing.

The amendments entered into force on 13 July 2024 and will be effective as of 1 January 2025.