- draft - for discussion purposes only - the information contained in this communication is intended...

- Draft - For Discussion Purposes Only -

The information contained in this communication is intended only for the use of the addressees and may contain information which is privileged and confidential. Disclosure of such information is prohibited by law. Distribution or copying of this communication by any person other than the addressee is strictly prohibited.

Tax Arrangement Netherlands CuraçaoOutline provisions relevant for international structuring.January 14, 2015Strictly private and confidential

2015, 6 FebruaryGiovanni ArminoEmea tax meeting, Warsaw


• Kingdom of the Netherlands

• Curaçao

• TANC Quick overview

• Dividend, intrest and royalties

• Double dip

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- Draft - For Discussion Purposes Only - 3

• 4 countries: Netherlands, Curaçao, Aruba and Sint Maarten (St Martin)

• The country Netherlands consists of a European part and a Carribean part

• Carribean Part: Bonaire, Saint Eustatius and Saba

Kingdom of the Netherlands


• 140.000 residents

• Currency: NAF

• Language: Dutch and English

• Curaçao does not levy any wealth tax

• Pit Curaçao 6.5% - 19.5%

• Cit Curaçao 27.5% with a participation exemption; capital gains are exempted. Special entities: 0% cit

• Curaçao does not levy any dividend withholding tax (‘WHT’)

• Special scheme for pensioners: pit 10% non source income

Curaçao


• Text Tax Arrangement Netherlands Curaçao (‘TANC’) submitted to parliament on June 5, 2014.

• Envisioned to come into force: January 1, 2016.

• Contrary to present Tax Arrangement of the Kingdom (‘TAK’), TANC is only valid between the Netherlands and Curaçao. The Netherlands includes the Caribbean Netherlands

• TAK will stay in force for the relation between Curaçao, Aruba and St. Maarten.

• TAK will stay in force for the relation between Aruba-The Netherlands, and St. Maarten-The Netherlands until these countries have reached a new agreement.

• St. Maarten and the Netherlands have reached and agreement on the text of the Tax Arrangement Netherlands St. Maarten, though not yet published.

• The relation between The Netherlands and Caribbean Netherlands is arranged in the Tax Arrangement of the Netherlands

TANC


• TANC follows the OECD model treaty, with some minor deviations, for example:

• Tie breaker rule dual residence situations for legal entities: not the place of effective management and control is decisive, but place of residence is determined through a mutual consultation procedure.

• Arrangement for hybrid entities in case of qualification differences.

• Permanent establishment in case of services performed in one of the countries.

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TANC, Quick overview


• Curaçao does not levy any dividend withholding tax (‘WHT’)

• The Netherlands levies 15% dividend WHT.

• Therefore the dividend article has only importance on dividend distributions from the Netherlands to Curaçao.

• Main rule: country of residence of receiving entity is allowed to tax, though source country may also levy tax to a maximum of 15%.

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TANC, Quick overview


Reduction of Dutch dividend WHT to 0%:• Payments to pension funds;

• Public entities;

• Legal entities that hold at least 10% of the nominal paid in capital in the subsidiary and in turn are held for at least 50% by individuals resident in Curaçao or the Netherlands;

• Companies that hold at least 10% of the nominal paid in capital in the subsidiary and are considered ‘qualifying’ companies under the limitation of benefits clauses (‘LOB’)

Transitional provision:• Reduction of the Dutch dividend WHT to 5% for existing structures that are excluded from

treaty benefits under the LOB provided that the parent company possesses at least 25% of the paid in capital of the subsidiary and is the beneficial owner of the dividends.

• All structures incorporated before the TANC comes in to force qualify for the transitional provisions; contrary to some other provisions, no explicit exclusion for structures set-up after publication of the TANC.

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Article 10: dividends


Limitation of Benefits:

• Parent company must posses at least 10% of the nominal paid in capital of the Dutch subsidiary; and

• Parent company must be a ‘qualifying’ company.

Qualifying company:

• The parent company satisfies a direct or indirect stock exchange test;

• The parent company passes for the head quarter test for internationally operating groups with widely and evenly spread activities;

• The parent company employs at least 3 resident individuals who independently manage the company’s affairs and are authorized to do so;

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Limitation of Benefits: (continued)

No qualifying company, still reduction Dutch dividend WHT to 0%:• Parent posses at least 10% of the nominal paid in capital in Dutch subsidiary; and

• Parent is active trading company or conduct business and the subsidiary’s trade or business is in line with trade or business of the parent company; or

• On request of the dividend paying company, the Dutch tax authorities establish that the main reason for using the TANC is not obtaining 0% dividend WHT (main purpose test).This is the safety net provision.

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I. Stock exchange test• Direct stock exchange test: parent is listed at recognized stock exchange

• Indirect stock exchange test: 2 categories:

• a. at least 50% of the shares of the beneficiaries are traded at a stock exchange and are resident of Curaçao or the Netherlands. This category sees to the Curaçao NV or Dutch NV that is listed and holds shares in a Dutch or Curaçao subsidiary;

• b. the second category sees to the foreign listed entity (not resident in Curaçao or the Netherlands) that holds 50% or more of the shares in a Curaçao NV and can best be explained with the following example. A Swiss listed company holds 100% of the shares in a Curaçao NV which holds 100% of the shares in a Dutch BV and Dutch BV hold operational companies in Europe. The Netherlands may not levy any withholding tax under the TANC if the Swiss company would hold the Dutch BV directly and under the Swiss-Dutch treaty the same or better advantages can be realized as under the TANC.

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Swiss CO

Belgium CO

Dutch CO

Lux CO

Cur CO

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A Swiss listed company holds 100% of the shares in a Curaçao NV which holds 100% of the shares in a Dutch BV and Dutch BV hold operational companies in Europe.

The Netherlands may not levy any withholding tax under the TANC if the Swiss company would hold the Dutch BV directly and under the Swiss-Dutch treaty the same or better advantages can be realized as under the TANC.



II. Head quarter test• a group of companies consisting of enterprises in 5 different countries or regions

generating at least 10% of the gross income of the group in each country or region; and

• no more than 50% of the gross income is derived from the country of which the dividend paying subsidiary is resident; and

• the entity is in its country of residence subject to taxes on income and profits like any other entity resident of that country which conduct operational activities (excluding financial services, royalty payments, insurance and reinsurance activities).

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III. Minimum of 3 resident employees• According to the present Dutch ruling policy, it could however be argued that it should not

matter whether the Company employs the Curacao resident employees itself or whether these are employed by another party (for example fiduciary offices).We contacted the Dutch ruling team with respect to this demand in the TANC, however the tax authorities informed us that they await the outcome of the parliamentary discussion of the TANC. The same goes whether the Company needs its own office space.

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IV. Activity test• The parent company in Curaçao possesses at least 10% or more of the paid in capital and

has an active trade or business, but does not meet the demands under I through III before.

• If the subsidiary has an active trade or business that is in line with the activities of the parent company, than the Dutch dividend WHT will be reduced to 0%.

V. Safety net provision• Only on request of the dividend paying company;

• Dutch ruling team will decide by disposal which can be appealed.

• Main purpose test is decisive.

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V. Safety net provision (continued)

• When main purpose test applicable? Criteria amongst others:

• The nature and extend of the activities parent in relation to dividends paid by subsidiary;

• Past and present interest;

• The business reasons to establish the parent company in Curacao.Note that from my point of view, the main purpose test should not be applicable as structure set up under the present TAK are subject to 8.3% Dutch dividend WHT.

• The parent company must conduct an active business to which the shares in the subsidiary can be attributed; and

• The parent company, should it have been resident in the Netherlands, must qualify for the conditions for up front certainty for holding activities.

• Whether parent company conducts business must be determined by the nexus demands as incorporated in the ministerial decree International Assistance Taxation (Uitvoeringsbesluit Internationale Bijstandsverlening Belastingheffing).

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Definitions of dividends:

• Includes repurchase of shares and liquidation.

Dividends from the Caribbean Netherlands subject to proceed tax:

• No reduction granted to dividends paid by entities subject to proceeds tax in the Caribbean Netherlands, as the Caribbean Netherlands does not levy a corporate income tax.

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• Both the Netherlands and Curaçao do not levy withholding taxes on interest and royalties.

Royalties• No withholding tax is levied on royalties by both countries

• New is that technical services are considered as royalty income. The article of the business profits is applicable in case royalties are paid as remuneration for the use of assets belonging to the assets of a permanent establishment of the beneficiary in the country of which the payments are derived.

Interest• No withholding tax is levied on interest by both countries. Note that Curaçao levies

withholding tax on interest under the Savings directive.

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Article 11 and 12: interest and royalties


Holding companyCuracao

0% companyCuracao

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Share holder is resident in MonacoPortfolio Investments in 0% companyParticipation exemption for HoldcoNo withholding tax on dividend distribution


Double dip structure

Envisaged structure– Cur BV1 and Cur BV2 form a fiscal unity

– Cur BV1 is considered as tax transparent from a US tax perspective

– The fiscal unity obtains certainty in advance with regard to its remuneration on the “lending and on lending” activities

– US LTD finances an acquisition with third party debt. The funds are on lend to a 100% subsidiary established in Curacao (Cur BV1)

– Cur BV1 contributes the funds as capital to its 100% subsidiary also established in Curacao (Cur BV2)

– Cur BV2 then lends the funds to its subsidiary functioning as the holding company for the Target.

Tax analysis– In the country of the target the interest should be fully deductible

– Under the new TANC dividend distributions from NL BV to Cur BV2 should be subject to withholding tax at a rate of 0% provided that certain requirements are met. (i.e. substance requirements and LOB (previous sheet)

– The Curacao participation exemption should provide for a full exemption of the dividend income in Curacao

– In the US no income is reported as long as Cur BV 2 does not distribute dividend.

– Curacao does not levy withholding taxes on dividend

USco(United States)

Cur BV1(Curacao)

Cur BV2(Curacao)

XX

NL BV(Netherland

s)

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Thank you

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