In its day, Curaçao was one of the world’s most successful tax havens, but those days are now long gone, and the story of how it was pumped and dumped by the Dutch Government is a warning.
Constitutional Status
Curaçao is a small, independent Caribbean island with a population of 148,000[1], which until 2010 was part of the Netherlands Antilles. As with many Caribbean islands, it had been a colonial possession, a position which was subtly altered in 1954 under the Charter for the Kingdom of the Netherlands.[2]
The charter bestowed country status in a collection of islands, some close together, some over 900km apart – an artificial gathering, not a nation that was rooted in local aspirations. More than a trace of truth is contained in an Antillean maxim that ‘the Netherlands Antilles only exists in the Netherlands’.[3]
This was a relationship of autonomy, and not one of independence – the Dutch possession in the Caribbean wanted to retain a free association with the mother country. The Antillean government sat in Curaçao, with local governments in Curaçao and each of the other islands. Then, on 10 October 2010, the Netherlands Antilles ceased to exist as a country, and Curaçao and St Maarten became separate countries “within the Kingdom”, alongside the Netherlands and Aruba.
Curaçao now conducts its internal affairs autonomously, on the basis of equality. Foreign relations and the maintenance of the independence and defence of the Kingdom are “Kingdom Affairs” and notionally none of the four components of the Kingdom has exclusivity, but for all practical purposes this is centralised in The Hague. Each country must promote the realisation of human rights, legal certainty, and good governance within its borders. It is the Kingdom’s responsibility to safeguard these values.
Subjects Of The Kingdom, But Not ‘True Dutch’
The people of Curaçao are subjects of the Kingdom on an equal footing with the Dutch themselves. They are ‘Nederlander’, but they are not accorded the status of ‘True Dutch’, which is reserved for those both of whose parents were born in the Netherlands. When they relocate to the Netherlands, which they have in considerable numbers, they retain their Antillean allegiance. They choose not to integrate, or perhaps as allochtoon (not ‘True Dutch’) are given little opportunity to do so. They are lumped together with all non-European Union immigrants, save only that the integration examinations which all such immigrants must pass do not apply to them.
Their situation is not helped by the Netherlands having a chequered reputation on institutionalised racism and non-integration. Published on 3 March 2022, the interim follow-up report on the Netherlands by the European Commission against Racism and Intolerance noted that none of its recommendations had been implemented.[4] A survey taken in December 2022 showed that more than half the population of the Netherlands was not in favour of issuing a formal apology for the Kingdom’s slavery past.[5] The Government of the Netherlands designated 1 July 2023 to 1 July 2024 as the Slavery Memorial Year:[6]
“For over 300 years, adults and children from various parts of Africa, were abducted and shipped across the Atlantic in inhuman conditions – mostly by Dutch slave traders – to the former Dutch colonies of Suriname and the Caribbean islands of Aruba, Bonaire, Curaçao, Saba, Sint Eustatius and Sint Maarten. […] During the Memorial Year, the Kingdom of the Netherlands will pause to reflect on this painful history. And on how this history still plays a negative role in the lives of many today.”
Tax Haven And The ‘Dutch Sandwich’
Curaçao developed as a tax haven solely to serve the needs of the Dutch financial services sector. It was created by the Dutch, promoting low taxation, a light touch to regulation of any kind and guaranteed confidentiality. Any wider business or social initiatives in Curaçao were discouraged – only what benefitted the “home country” was to be allowed.
In the early 1950s, Curaçao became a taxation staging post for Dutch capital fleeing high taxes at home and seeking to take advantage of a burgeoning investment regime in the United States.
Curaçao sat within the greater colonial structure of the Netherlands Antilles, which had a central government. It was this government that in the 1950s and early 1960s successfully lobbied the Dutch Government (with no Dutch pushback at all, of course) to be allowed to accede to double taxation treaties, which the Netherlands had entered into with the United States and the United Kingdom. In addition, the government of the Netherlands Antilles secured from the Netherlands an agreement that dividends remitted from the Netherlands to the Netherlands Antilles would not be taxed at source.[7]
The result was the creation of a new international double taxation delicacy – the ‘Dutch Sandwich’.
It was simplicity itself, and therein lay its strength and enormous popularity. The Netherlands had a wide range of double taxation treaties with low mutual taxes on dividends and royalties. Businesses in these treaty partner countries remitted dividends or royalties to a shell company established in the Netherlands for the purpose, tax free, not taxing them themselves because they would be taxed by the Netherlands. But the Netherlands had no intention of imposing any taxation, because no sooner had the shell company received the funds than it would in turn remit these onwards to a shell company in Curaçao, again tax free. The dividends and royalties received by the Curaçao shell company would be subject to very little taxation, and to boot, would be held offshore so that future earnings on these amounts would also benefit from a virtual tax holiday. The cumulative effect was substantial. The demand for shell companies in both the Netherlands and in Curaçao was exponential, boosted even more by the availability in Curaçao of companies, the shares in which could be held in bearer form, such that obtaining any information on the legal or beneficial owners was for all practical purposes impossible.
Decline And Fall
The fragility of Curaçao’s position is immediately clear. It was completely passive. If the Netherlands were to make an arrangement with another low tax jurisdiction as the third link in the chain instead of Curaçao, or if the Netherlands itself introduced attractively low corporation taxes for royalties or dividends received from abroad, such that there was no longer any incentive for the funds to leave the Netherlands, then Curaçao would be completely surplus to requirements. And this is exactly what happened.
It was partly a result of developing taxation strategies within the European Union, which in 1990[8] removed any withholding tax on dividend payments from subsidiaries to parent companies within the European Union. Corporations abandoned offshore tax havens and moved instead to the European Union’s principal internal tax haven, Luxembourg.
Adverse comments and imposed regulation on tax havens beginning in the 1990s from organisations such as the European Union, the G20 and G7, the OECD and the Financial Action Task Force, added to Curaçao’s woes.
Having been comfortably dependent on its relationship with the Netherlands, Curaçao had failed to develop a diversified international suite of finance sector offerings, unlike many of its neighbours in the Caribbean. It was a crowded market, and Curaçao had little if anything unique to offer.
Yet Curaçao had also benefitted from double taxation treaties with the United States and with the United Kingdom, so when the Netherlands turned its back, why had success as a tax haven not continued? It had overplayed its hand, and in the 1980s, in spite of the Antilles government and Curaçao itself lobbying fiercely, these treaties were terminated. Approaches made by Curaçao to other countries to join their double taxation treaty networks were unsuccessful, as adverse criticism of tax havens mounted and Curaçao’s attractiveness declined.
“[This] marked the end of more than 20 years of explosive growth. The number of offshore companies, public income from profit taxes and from foreign exchange payments all dropped sharply, perked up a bit again during the 1990s, but that was temporary: a firm base for renewed growth had disappeared. […] Curaçao had simply missed the boat.”[9]
Domestic Impact – A Failed State
Meanwhile, something quite sinister had been happening within Curaçao whilst its attention was focused on its finance sector. The imploded finance sector gave way to the runaway success which is narcotics trafficking.
A flavour of life in Curaçao from an off-island perspective is found in the advice to travellers provided by the United Kingdom Government:
Protecting yourself and your belongings
Petty theft and street crime are a concern. There are violent crimes related to the illegal drugs world, but the main tourist areas are generally safe. Take precautions such as:
Drug smuggling
Criminals continue to use the islands of the Dutch Caribbean to smuggle illegal drugs from South America to Europe and North America. Because of this problem, never leave luggage unattended when departing the country. Do not discuss or agree to carry a package for anyone. You may be asked to have a body scan at some airports. Dutch authorities generally screen all baggage and passengers from the Dutch Caribbean.[10]
Warnings like these are neither apocryphal nor alarmist. The following table charts registered crimes, compiled by the Curaçao police force:[11]
YEAR |
VIOLENT CRIMES AGAINST LIFE |
FIREARMS SEIZED |
REGISTERED CAR THEFTS |
REPORTED HOME BURGLARIES |
2017 |
482 |
152 |
422 |
495 |
2018 |
336 |
128 |
197 |
562 |
2019 |
305 |
103 |
283 |
665 |
2020 |
270 |
80 |
237 |
292 |
2021 |
386 |
84 |
283 |
184 |
2022 |
168 |
74 |
158 |
204 |
How has good governance been observed and order preserved? Hardly at all:
“Misgivings about Kingdom safeguards in the Dutch Caribbean on a wide range of issues had been aired before: prison conditions were unacceptable; deleterious air pollution (by Curaçao’s refinery) was intolerable; and widespread social disintegration of more and more neighbourhoods on the island of Curaçao had cast a worrisome light on the competence of Antillean as well as Kingdom public authorities. But the degree of violence and drug trafficking added to a failed state image of the Netherlands Antilles, while making a mockery of the Kingdom’s promise to safeguard good governance in the Dutch Caribbean.”[12]
And so Curaçao is a failed state, moulded as a tax haven for which no one has any further use, bereft of a diversified economy, plunged into social disintegration with a shadow narco-economy driven by crime and sustained by extreme violence. Above all, it is surplus to requirements. Its people are little regarded, even within their own Kingdom.
[1] Source: The World Bank Data, Population, total - Curaçao 147,862 (2023) falling from 152,369 (2021) <https://data.worldbank.org/indicator/SP.POP.TOTL?locations=CW> (accessed 6 September 2024)
[2] Royal House of the Netherlands, Charter for the Kingdom of the Netherlands <https://www.royal-house.nl/topics/legislation/charter-for-the-kingdom-of-the-netherlands> (accessed 6 September 2024)
[3] Lammert de Jong, ‘The Implosion of the Netherlands Antilles’ in Peter Clegg and Emilio Pantojas-Garcia (eds) Governance in the Non-Independent Caribbean. Challenges and Opportunities in the Twenty-First Century (Ian Randle Publishers, Kingston and Miami, 2009) 25
[4] European Commission against Racism and Intolerance, ‘ECRE Conclusions on the Implementation of the Recommendations in Respect of the Netherlands Subject to Interim Follow-up CRI(2022)03 Adopted 7 December 2021, published 3 March 2022’ <https://rm.coe.int/ecri-conclusions-on-the-implementation-of-the-recommendations-in-respe/1680a59aee> (accessed 6 September 2024)
[5] Anna Holligan, ‘Netherlands slavery: saying sorry leaves Dutch divided’ (BBC News, The Hague, 19 December 2022) <https://www.bbc.co.uk/news/world-europe-63993283> (accessed 19 March 2023)
[6] Government of the Netherlands, Slavery Memorial Year 1 July 2023 to 1 July 2024 <https://www.government.nl/ministries/ministry-of-education-culture-and-science/events/slavery-memorial-year> (accessed 6 September 2024)
[7] Belastingsregeling Koninkrijk 1965 (BRK, Tax Arrangement for the Realm). Details of the current position are available (in Dutch only) from Eerste Kamer der Staten-General,‘Belastingregeling Nederland Curaçao’ <https://www.eerstekamer.nl/wetsvoorstel/33955_belastingregeling_nederland?df1=vgi8gqaw8fs6> (accessed 6 September 2024)
[8] Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries in different Member States (Official Journal L 225, 20/08/1990 P. 006 - 009) https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31990L0435:en:HTML (accessed 6 September 2024). This was subsequently updated and refined, the current position being Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries in different Member States (recast) (OJL 345, 29.11.2011, p.8) as amended to 2015 <http://data.europa.eu/eli/dir/2011/96/2015-02-17> (accessed 9 September 2024).
[9] Tijn van Beurden and Joost Jonker, ‘A perfect symbiosis: Curaçao, the Netherlands and financial offshore services, 1951-2013’ Financial History Review, Volume 28, Issue 1, April 2021, 67-95. Published online by Cambridge University Press, 14 January 2021 <https://www.cambridge.org/core/journals/financial-history-review/article/perfect-symbiosis-curacao-the-netherlands-and-financial-offshore-services-19512013/9553E156539D00E52F8EC687EBBBD39E#figures-tab> (accessed 6 September 2024)
[10] United Kingdom Government, Foreign Travel Advice, Curaçao <https://www.gov.uk/foreign-travel-advice/curacao/safety-and-security> (accessed 6 September 2024)
[11] Curaçao Central Bureau of Statistics, ‘Security & Justice’ <https://www.cbs.cw/security-justice> (accessed 6 September 2024)
[12] Lammert de Jong, ‘The Implosion of the Netherlands Antilles’ in Peter Clegg and Emilio Pantojas-Garcia (eds) Governance in the Non-Independent Caribbean. Challenges and Opportunities in the Twenty-First Century (Ian Randle Publishers, Kingston and Miami, 2009) 33
Paul Beckett
Paul is a Lawyer and Academic, specialising in company, commercial and trust law; banking and fund management; cryptocurrencies and the blockchain; fraud, bribery, white collar crime, anti-money laundering and financial services regulation; commercial arbitration; business immigration; and domestic and international human rights (civil, political, economic, social and cultural rights). Recent publications include 'European Cross-Border Estate Planning' (Isle of Man chapter) (Sweet & Maxwell, London, first published 1995, current edition 2024), and 'Digest of Commercial Laws of the World' (Isle of Man chapter) (Thomson Reuters, USA, 2016, current edition 2024), 'An Anatomy of Tax Havens: Europe, the Caribbean and the United States of America' (De Gruyter, Berlin, 2023) and 'Beneficial Ownership and Legal Responsibility: Concealment, Avoidance and Impunity' (Routledge, London/New York, 2024).