Curaçao and Tax Treaties

The smaller a country, the more foreign affairs it has. This often leads to dealings with many other countries. Different countries have their own distinct rules, and there is no coordination among them. In the EU, efforts are made to resolve such discrepancies through overarching legislation, but this is not always successful due to the individual interests of member states. This problem is also evident in the realm of taxation. Without coordination between countries, cross-border transactions or income can easily lead to double taxation, or in some cases, a tax vacuum. For Curaçao, this issue is no different in relations with foreign countries.

Countries generally have similar principles for tax systems, but these principles can lead to double taxation internationally. Almost every country applies the following two basic rules for both individuals and entities: if a person or entity resides or is established in a country, tax is levied on worldwide income, regardless of where the income originates. The other basic rule is that if income arises in a country, such as wages, profits, or dividends, that country typically taxes it regardless of where the beneficiary resides.

When most countries apply these two principles, double taxation on cross-border income is common. If nothing is done to address this, it becomes unattractive to work, conduct business, or invest in another country. This is the primary reason for establishing tax treaties: to prevent double taxation and, consequently, stimulate cross-border investments. This benefits the economies of the involved countries.

For a long time, Curaçao had three treaties: a formal treaty with Norway, and two special treaties with the European Netherlands and the other parts of the Kingdom. Special treaties because treaties cannot be concluded between countries of the Kingdom. To prevent double taxation among the Kingdom countries, the well-known Tax Regulation for the Kingdom (BRK) was established long ago, which essentially regulates the same matters as treaties but between the Kingdom countries. Almost ten years ago, this BRK was somewhat restricted, and separate prevention agreements were established between the Netherlands (including the BES) and Curaçao (the BRNC), and later between the Netherlands and St. Maarten (the BRNS). However, an agreement between the Netherlands and Aruba (the BRNA) is still pending.

Recently, Norway terminated its treaty with Curaçao, possibly considering it insufficiently significant. Curaçao, however, has since developed its own treaty policy, including principles for treaty negotiations and a standard treaty based on the OECD Model Treaty. This policy is available on the website of the Ministry of Finance. The OECD Model Treaty serves as a global standard template, facilitating the creation of tax treaties that are generally similar worldwide. The Model Treaty is periodically updated to reflect new developments, with the latest version from 2017 incorporating significant provisions to prevent tax avoidance. Tax avoidance has been a hot topic in recent years and often involved the use of tax treaties, prompting countries to amend the OECD Model Treaty accordingly.

Curaçao’s model treaty and treaty policy closely align with the OECD Model Treaty. Based on this, Curaçao is now negotiating concrete treaties with other countries. Malta was the first, as an agreement had been reached long ago, but it was never ratified or enacted. The treaty has been amended, particularly to counteract tax avoidance, but it will only come into effect once signed by both countries' foreign ministers and approved by the Dutch parliament if requested. The treaty with Malta has now been approved, albeit with some difficulty. Similar treaties are being worked on with San Marino and, more recently, Suriname. The latter is particularly interesting due to relatively strong economic ties, and the treaty could remove various fiscal obstacles, enhancing relations between the two countries. Additionally, the BRNC has been amended to include anti-abuse provisions from the OECD Model Treaty, and this change has also been approved by parliament.

Looking to the near future, it is crucial to establish treaties with key trading partners of Curaçao, particularly focusing on countries in Central and South America. This will be a challenge.

In the next column, I will discuss some important provisions from the tax treaties concluded by Curaçao.

Peter Kavelaars is a Professor of Fiscal Economics at Erasmus University Rotterdam and Of Counsel at Deloitte Dutch Caribbean.