New Tax Havens?

October 19, 2010 International Tax CooperationOffshore TaxationTax HavensTaxation in CuracaoTaxation in NetherlandsTaxation in St Maarten

St. MartenThe Netherland Antilles have officially been dissolved, with St Maarten and Curacao becoming constituent countries within the Kingdom of the Netherlands. Now questions are being raised about the future tax system of the remaining three municipalities, with some already claiming that they will become low-tax jurisdictions.

On October 10th St Maarten and Curacao split from the Netherland Antilles, becoming constituent countries in the Kingdom of the Netherlands, gaining greater government autonomy, increased independence from the Netherlands Government, and the right to full use of their own tax revenues. Bonaire, St. Eustatius and Saba (BES), being the remaining three islands of the Netherland Antilles, have become Dutch special municipalities.

The Dutch Government has approved preliminary legislations for the BES’s tax system, which will see the effective abolishment of corporate income taxes and the introduction of a 1 percent property tax and a 5 percent distribution withholding tax. The property tax will be levied only on commercial properties with a value above USD 50 000. The distribution tax will be imposed on any corporate entity if distributions are made to its beneficiaries. The BES is also scheduled to instate full use of the US Dollar as the national currency in 2011. The moves have been branded by some as creating a new “tax haven. However, Jan Kees de Jager, Dutch Minister of Finance, has adamantly denied that the Government is creating a new “tax haven” claiming that the municipalities will be better served by the steady, predictable and dependable natures of the property and distribution taxes, as a corporate income tax is heavily influenced by global economic conditions and prone to fluctuations. He added that several legislative barricades exist ensuring that businesses based in the BES operate for legitimate reasons and do not encourage tax evasion and also support the local economies, including a mandate that says multinational companies hold commercial property in excess of USD 50 000 in the islands if creating a company.

Under the agreement for autonomous rule for the newly formed constituent countries of St. Maarten and Curacao, the Dutch Government will still hold responsibility for the foreign policy and defense of St Martens and Curacao. The Netherlands will also hold initial financial and fiscal oversight of the islands, as a condition of a debt relief deal, which will see almost EUR 1 billion granted to the islands. The two islands will share a central bank and a supreme court, leading analysts to believe that they will have similar tax systems. Currently, both constituent countries are scheduled to use the previous Netherlands Antilles tax laws until the end of 2011. As newly independent nations, the two islands will be bound to follow the European Union rules regarding harmful tax competition, which prohibit, among other things, granting tax advantages in the absence of real economic activity, reservation of tax benefits for non-residents, a lack of transparency, and tax incentives that are based on activities outside of the national economy. While speaking at the Dutch House of representatives on October 6th Ronald van Raak, member of the Dutch Socialist party, claimed that the governments of both islands wish to introduce a 15 percent corporate tax rate, but fear that the BES’s practically non-existent rates will create an unfair tax competition among the neighboring islands.

Photo by digitalfilmphoto