Headlines of the new Tax Arrangement for the Kingdom of the Netherlands (TAK)

The TAK is the arrangement for the avoidance of double taxation between the Netherlands and Curaçao. On 12 December 2011, the Dutch Ministry of Finance issued a press release outlining the features of the "new" TAK. The "new" TAK will be based upon the OECD Model Tax Convention and should enter into force as per 1 January 2013. The new TAK may have significant tax consequences for businesses as well as individuals having an economic nexus with Curacao. Below we elaborate on the most significant features of the new TAK.

Dividend withholding tax

Under the current TAK, the standard dividend withholding tax rate on dividends from the Netherlands to Curacao is 8.3%. Under the new TAK, a 0% dividend withholding tax will apply to dividend distributions by Netherlands participations to certain Curacao resident parent companies, provided these Curacao resident companies meet the to-be-introduced "limitation on benefits" test. At this stage no further information is available with regard to this "limitation on benefits" test. One may expect however that the "limitation on benefits" test will be based upon similar provisions in recently concluded tax treaties by the Netherlands, thus creating a level playing field.

Dividend distributions by Netherlands participations to their Curacao parent companies that do not meet the "limitation on benefits" test will be subject to the Dutch domestic dividend withholding tax rate of 15%. Until 31 December 2019 however, this 15% withholding tax rate will be reduced to 5% when the Curacao parent company holds a participation of at least 25%.

Non resident tax liability

As from 1 January 2012, the Dutch non-resident tax liability rules will be amended to underline the anti-abuse character of these rules. In the current TAK, article 35A grants both the Netherlands and Curacao the right to exercise their taxing rights based on their domestic anti-abuse rules, notwithstanding any of the other provisions of the TAK. The press release confirms that during 2012, the Netherlands will not apply the anti-abuse provision of article 35A with respect to the non-resident tax liability rules. This implies that the Netherlands will not apply these rules in respect of Curacao resident parent companies of Dutch companies or Curacao resident members of Dutch cooperatives until the end of 2012. In case a restructuring of existing Coop structures with Curacao resident members is deemed required pursuant to the new non-resident tax liability rules, by virtue of this confirmation such restructuring may be postponed until the end of 2012.

Inheritance and personal income tax aspects

The new TAK aims to reduce the number of tax driven emigrations to Curacao. To this effect, the following measures will be introduced.

Under the new TAK, the country from which an individual emigrated may levy inheritance and gift tax up to five years after emigration. This term is only one year under the current TAK. The country of residence should however grant a credit for the taxes levied by the source country.

Under the current TAK, non-government pensions may be taxed only by the country of which the "pensionado" is a resident. Under the new TAK however, the source country will also be allowed to tax such pensions, albeit at a flat rate of 15%. The residence country should grant a credit for the tax levied by the source country. Pension schemes that have already started will be grandfathered.

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