Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

Curaçao

Curaçao has met the terms of reference (ToR) for the calendar year 2017 (year in review), except for identifying which category each ruling falls into (ToR I.4.1.2) and completing exchanges of information on rulings in accordance with the timelines (ToR II.5.6). Curaçao is recommended to continue to finalise its information gathering process identifying all past and future rulings as soon as possible and to continue its efforts to ensure all information on past and future rulings is exchanged as soon as possible.

Curaçao can legally issue five types of rulings within the scope of the transparency framework.

In practice, Curaçao has issued an estimated number of 3 630 past rulings; and for the year in review, Curaçao issued an estimated number of 320 future rulings within the scope of the transparency framework.

No peer input was received in respect of the exchanges of information on rulings received from Curaçao.

Introduction

314.  This peer review covers Curaçao’s implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

315.  Curaçao can legally issue the five following types of rulings within the scope of the transparency framework: i) taxpayer specific rulings related to preferential regimes;1 ii) cross-border unilateral advance pricing arrangements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles; iii) cross-border rulings giving a unilateral downward adjustment to the taxpayer’s taxable profits in the country giving the ruling; iv) permanent establishment (PE) rulings; and v) related conduit rulings. In Curaçao, the ruling office in the tax administration, which is an agency of the Ministry of Finance of Curaçao, is in charge of issuing the tax rulings.

316.  The process for gathering information about past rulings is explained first, followed by the process for gathering information about future rulings.

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

317.  For Curaçao, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2015 but before 1 April 2017; or (ii) on or after 1 January 2012 but before 1 January 2015, provided they were still in effect as at 1 January 2015.

318.  The process for identifying past rulings was conducted as follows. The tax rulings are stored in a database on the basis of the issuance date. The database also contains the ruling reference number and the name of the taxpayer. The rulings team used the database to identify all possibly relevant rulings, and then checked the content of the ruling. This included reading each ruling to conduct an analysis of the requested benefits, the review of the issuance date to determine the period of validity for past rulings, as well as an examination of the structure charts of the company to determine if there were likely to be cross-border aspects. The ruling team additionally matched the text of the granted tax rulings with the tax returns of the taxpayers. Where relevant, the ruling was identified and registered according to its corresponding category under the transparency framework.

319.  By the end of 2017 Curaçao completed its review process and identified the rulings issued in the past. Currently Curacao is in the process of reviewing the past rulings in order to confirm that they are cross border rulings and therefore within the scope of the transparency framework. This process also entails identifying which category each ruling falls into, as there has been a large number of rulings, and many of these fall into more than one category. This process, including the exchange of the rulings under the transparency agenda, will be completed by the first quarter of 2019.

320.  In order to identify the exchange jurisdictions, the same review process was used as this information is usually included in each ruling. Curaçao has used the “best efforts approach” in cases where information on all the relevant jurisdictions was not contained in the ruling, whereby Curaçao approached the relevant taxpayers and tax advisors to assist with completing the templates and to provide the structure chart to identify all relevant jurisdictions.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

321.  For Curaçao, future rulings are any tax rulings within scope that are issued on or after 1 April 2017.

322.  As is the case for past rulings, the tax rulings are stored in a database on the basis of the issuance date. The database also contains the ruling reference number and the name of the taxpayer. The rulings team checks the database each month and then reviews the content of the ruling, including an analysis of the requested benefits as well as of the structure charts of the company. The ruling team additionally matches the text of the granted tax rulings with the tax returns of the taxpayers. Consequently, the ruling is identified and registered as such in its corresponding category within the transparency framework scope.

323.  The same review process is used to identify the exchange jurisdictions. In respect of some future rulings for the year in review, information was not available to identify all relevant jurisdictions. In these cases, the taxpayer has been requested to provide an updated structure chart in order for the Curaçao tax administration to identify all the necessary potential exchange jurisdictions. This enabled the Curaçao tax administration to identify all potential exchange jurisdictions.

324.  Curaçao has designed a new streamlined ruling practice, and taxpayers have been informed that the procedure will apply for a ruling issued in 2018. The new prerequisites were published in February 2018, which provide that in order to obtain a ruling the taxpayer must provide an updated structure chart and a completed template when submitting a request for a tax ruling. Information regarding the type of rulings and the jurisdictions with which the rulings have to be exchanged will be captured from this template and thoroughly checked by the Ruling Team. No ruling will be issued if these prerequisites are not provided or information is found to be incorrect following the verification by the Curacao Tax Authority and therefore it is ensured that all information is always obtained. In addition Curaçao is currently in the process to digitalise the ruling request procedure through an electronic online system which is expected to be implemented in the year 2019. The new procedure will affect the information gathering process and the exchanges activities performed in 2018 and will be reviewed in the subsequent peer reviews.

Review and supervision mechanism (ToR I.4.3)

325.  Curaçao had a review and supervision mechanism in place for the year in review. Officials in charge of complying with the transparency framework both within the rulings team in the tax administration and the Ministry of Finance/Directorate of Fiscal Affairs have received internal guidance about the transparency framework requirements. One senior officer is in charge of providing oversight on the process and a review board within the rulings team will ensure that the relevant information is captured accurately.

Conclusion on section A

326.  Curaçao completed its review process and identified all of the past and future rulings issued. However Curaçao has not yet completed the process of reviewing the remaining templates of past and future rulings in order to confirm that they are cross border rulings and therefore within the scope of the transparency framework and to identify which category each ruling falls into (ToR I.4.1.2). Curaçao is recommended to continue to finalise its information gathering process identifying all past and future rulings as soon as possible.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

327.  Curaçao has the necessary domestic legal basis to exchange information spontaneously. Curaçao notes that there are no legal or practical impediments that prevent the spontaneous exchange of information on rulings as contemplated in the Action 5 minimum standard.

328.  Curaçao is a party to international agreements permitting spontaneous exchange of information, including: (i) Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (“the Convention”) and (ii) double tax agreements in force with two jurisdictions.2

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

329.  The tax administration (i.e. the ruling team) is in charge of completing the templates, using Annex C of the BEPS Action 5 Report. Templates are sent to the Directorate of Fiscal Affairs of the Ministry of Finance together with a copy of the ruling, the structure chart and the analysis by the Curaçao tax administration. The Directorate of Fiscal Affairs compares the information contained in the template with the information contained in the ruling and the structure chart. If the information is correct, the template is sent to the Competent Authority to be exchanged. If not, corrections are made by the Directorate of Fiscal Affairs in dialogue with the Curaçao tax administration and the revised template is then sent to the Competent Authority to be exchanged. Currently a postal courier service is used to securely deliver the templates to the exchange jurisdictions. A digitalised system for the spontaneous exchange of information on tax rulings will be operational in the year 2019.

330.  For past and future rulings, the templates were sent to the Directorate of Fiscal Affairs in November and December 2017. According to the new procedure under development, the completion of the template by the rulings team is part of the ruling request procedure to ensure that the information can be sent to the Directorate of Fiscal Affairs very shortly after the ruling is issued. At the end of each month, the tax administration provides the Directorate of Fiscal Affairs with the templates, the structure charts and a copy of the rulings issued that month. With regard to the completion of the summary section, the templates provide a summary of the applicable regime and a summary of the specific agreements made between the Tax Inspectorate and the taxpayer with respect to how certain income and costs will be treated in Curaçao.

331.  For the year in review, the timeliness of exchanges is as follows:

 

Past rulings in the scope of the transparency framework	Number of exchanges transmitted by 31 December 2017	Delayed exchanges
		Number of exchanges not transmitted by 31 December 2017	Reasons for the delays	Any other comments
	146	3 505	Curaçao has a large amount of rulings. Curaçao is currently identifying the rulings to be able to exchange all the cross border rulings.
Future rulings in the scope of the transparency framework	Number of exchanges transmitted within three months of the information becoming available to the competent authority or immediately after legal impediments have been lifted	Delayed exchanges
		Number of exchanges transmitted later than three months of the information on rulings becoming available to the competent authority	Reasons for the delays	Any other comments
	12	296	See below
Total	158	3 801

 

Follow up requests received for exchange of the ruling	Number	Average time to provide response	Number of requests not answered
	N/A	N/A	N/A

332.  Curaçao explained that the delays originated from the analysis of the tax rulings required to classify and categorise them as well as the determination of the relevant exchange jurisdictions. These delays will be remedied by training additional staff at the Curaçao tax administration and with the application of the new procedures when issuing a ruling, supported by monthly monitoring of progress. Curaçao expects to complete the exchange of remaining past and future rulings by the first quarter of 2019.

Conclusion on section B

333.  Curaçao has the necessary legal basis for spontaneous exchange of information and a process for completing the templates in a timely way. Curaçao experienced significant delays in exchanging past and future rulings mostly due to the administrative burden which stems from the issuance of a large number of rulings within the scope of the transparency framework. Curaçao has met all of the ToR for the exchange of information other than the timely exchange of information on past and future rulings (ToR II.5.6). Curaçao is recommended to continue its efforts to ensure all information on past and future rulings is exchanged as soon as possible.

Curaçao

C. Statistics (ToR IV)

334.  The statistics for the year in review are as follows:3

 

Category of ruling	Number of exchanges	Jurisdictions exchanged with
Ruling related to a preferential regime	306	Andorra, Australia, Barbados, Belgium, Belize, Brazil, Canada, China (People’s Republic of), Denmark, France, Germany, Hungary, Isle of Man, Israel, Italy, Jersey, Liechtenstein, Luxembourg, Malta, Mauritius, Mexico, Netherlands, Nigeria, Norway, Portugal, Russia, Singapore, Spain, Switzerland, United Kingdom, United States
Cross-border unilateral advance pricing arrangements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles	4	Andorra, Netherlands
Cross-border rulings providing for a unilateral downward adjustment to the taxpayer’s taxable profits that is not directly reflected in the taxpayer’s financial / commercial accounts	4	Guernsey, Luxembourg
Permanent establishment rulings	2	Netherlands, United States
Related party conduit rulings	N/A	N/A
De minimis rule	N/A	N/A
IP regimes: total exchanges on taxpayers benefitting from the third category of IP assets, new entrants benefitting from grandfathered IP regimes; and taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption	N/A	N/A
Total	316

D. Matters related to intellectual property regimes (ToR I.4.1.3)

335.  Curaçao offers two preferential regimes, which also offer benefits to income from intellectual property (“IP regime”).4 However no transparency requirements were relevant, as follows:

• New entrants benefitting from the grandfathered IP regime: not applicable for the year in review, because during the year in review, Curaçao was in the process of amending/abolishing the two regimes and had not taken a decision yet on whether it would provide grandfathering to existing taxpayers. Should Curaçao provide grandfathering to taxpayers that entered the regime after the publication of the 2017 Progress Report, which occurred on 16 October 2017, then the enhanced transparency requirements will apply and this will be taken into account during the subsequent peer review.

• Third category of IP assets: not applicable to these regimes, which in 2017 were in the process of being amended.

• Taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption: not applicable to these regimes, which in 2017 were in the process of being amended.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
The information gathering process is still underway in Curaçao with respect to past and future rulings and the classification of these rulings under each category.	Curaçao is recommended to continue to finalise its information gathering process identifying all past and future rulings as soon as possible.
Curaçao experienced delays in exchanging information on past and future rulings.	Curaçao is recommended to continue its efforts to ensure all information on past and future rulings is exchanged as soon as possible.

References

OECD (2017), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. https://doi.org/10.1787/9789264241190-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Notes

← 1.  With respect to the following preferential regimes: 1) export facility; 2) tax exempt entity; 3) free zone; and 4) offshore regimes. The offshore regime has been abolished in 2001 and is grandfathered for fiscal years preceding 30 June 2019.

← 2.  Parties to the Convention are available here: www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm. Curaçao also has bilateral agreements with the Netherlands and Norway.

← 3.  Curaçao issues dual category which have as main element a preferential regime but can also contain one of the other four categories mentioned above. In terms of counting, these dual category ruling have been included into the “preferential regime” category. Only when a ruling relates exclusively to one of the categories mentioned above, it is counted in that category.

← 4.  These regimes are: 1) Export facility and 2) Tax exempt entity.