Sunday, 18 March 2012

Curaçao – Memories

In October of 2011, the parliament of Curaçao approved legislation allowing for the establishment of an Anglo-Saxon trust.  Now I have to fully disclose – as a child my step father always entertained me with bedside stories on how to plan a breakfast menu or how to decorate a hotel room with decorations a tourist would not abscond with.  He and his then wife Truus van den Plas in the fifties (yes the 1950s) owned the Avila Hotel in Curaçao.  Although he lost his share of the hotel in his divorce from Truus, he managed to instill in me a great love for Willemstad.  So it was with great delight that I read that an Anglo-Saxon trust was now available on Curaçao. 

The 1960s – some of you reading this blog will remember the days when there was a tax treaty between the United States and the Netherlands Antilles (Curaçao was part of the Netherlands Antilles) and where such treaty did not contain a Limitation on Benefits (LOB) clause or in other words an anti-treaty shopping clause.  The absence of a LOB clause allowed foreign investors from countries, where there was no treaty with the U.S., to set up a structure allowing dividends from their U.S. operations to be paid to a corporation situated in Curaçao.  Under the then treaty the U.S. only levied a 15% withholding tax on dividends to an entity in Curaçao reducing 30% withholding tax rate of the Internal Revenue Code.  Royalty and Interest payments were not subject to withholding taxes under the Treaty.  Furthermore the income tax rate back then in the Netherlands Antilles was between 2.4% to 3%.  The U.S. of course was livid as it was losing tax revenue to corporations who were unfairly benefitting from a treaty in a jurisdiction to which they did had no connection.  The U.S. soon abandoned their treaty with the Netherlands Antilles and started renegotiating their existing tax treaties with the insistence the addition of a limitation of benefits clause.  Of course the U.S. was not able to renegotiate all their treaties at once so tax practitioners were always searching for the treaty that did not contain an LOB clause – for e.g. in the late nineties the Hungarian treaty had not yet been renegotiated and brisk planning was done through Hungary for corporations from a jurisdiction which did not have a tax treaty with the United States.  Iceland was also a favourite – its treaty with the United States was as recently renegotiated – 2007 – to include a LOB clause.

I was not able to locate the legislation for the Anglo Saxon trust in Curaçao.  An Anglo Saxon trust is one where the transfer of property is absolute and the trust is irrevocable and no vested interest in the property is retained by the settlor of the trust.  As such for individuals seeking to credit proof their assets such a trust is good thing. But such a statement has to be clarified as I don’t know whether the Courts in Curaçao will respect the transfer of assets when challenged or whether they will deem the transfer to be fraudulent and therefore not effective.  Challenges can come from creditors and from spouses of the settlors and of the beneficiaries.  Certain jurisdictions will deem an asset protection trust to be penetrable within two years from the transfer of assets and some jurisdictions will treat the trust as iron clad and not challengeable.  As this legislation is so new – it has not been tested in the courts of Curaçao I have no idea how iron clad it is.  I am also unsure whether the rule against perpetuity applies to an Anglo Saxon trust in Curaçao.  Jersey (Channel Island) for example does not have the rule against perpetuity and as such one does not have to worry about planning for the deemed disposition of the trust assets every 21 years as mandated by the rule against perpetuity.

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