Curacao Issues Draft Global Minimum Tax Ordinance

Legislation

On December 20, 2024, Curacao’s Global Minimum Tax Ordinance (‘the Law’) was approved by Parliament and it was subsequently published on December 27, 2024.

The Law includes an Income Inclusion Rule (IIR) and a domestic minimum tax (intended to be a Qualified Domestic Minimum Top-Up Tax) from December 31, 2024. The Under-Taxed Profits Rule is not included in the Law.

Curacao’s approach is to implement the global minimum tax provisions as a separate tax law with a redraft of the provisions of the OECD Model Rules, as opposed to directly transposing the OECD Model Rules into domestic law.

General

As expected, the Law closely follows the OECD Model Rules, however, it does not reflect most aspects of the OECD Administrative Guidance (either the February 2023, July 2023, December 2023 or June 2024 guidance issued). A number of provisions in the Law are subject to additional Decrees or rules to provide further detail on the implementation of various aspects.

The Transitional CbCR Safe Harbour, the QDMTT Safe Harbour and the Simplified Calculations Safe Harbours are provided in the Law, however, the latter is subject to a further detailed implementation decree.

Administrative Guidance

The Law does not include many aspects of the OECD Administrative Guidance.

Aspects of the First Set of OECD Administrative Guidance included in the Law are:

-Deemed consolidation test (Article 1.4);

-Sovereign wealth funds and the definition of Ultimate Parent Entity (Article 1.4);

-Meaning of ancillary for Non-Profit Organisations (Article 1.6);

-Excluded Equity Gains or Loss and hedges of investments in foreign operations (Article 2.2);

-Debt release Election (Article 2.4);

-Excess negative tax carry-forward guidance (Article 2.7) – Subject to a Specific Decree;

-Equity Gain or loss inclusion election (Article 2.9) – Subject to a Specific Decree;

-Blended CFC Regimes (Article 2.10) – Subject to a Specific Decree;

-Exclusion of Insurance Investment Entities from the definition of Intermediate Parent Entity and Partially-Owned Parent Entity (Article 3.2);

-Portfolio shareholdings election (Article 3.5).

No aspects of the Second, Third or Fourth Set of OECD Administrative Guidance are included in the Law.

Safe Harbour and Penalty Relief Guidance

Section 20 of the Law provides for the application GloBE Safe Harbours. However, the detailed provisions are included in the Regulations.

Article 8.8 the Law includes the Transitional CbCR Safe Harbour based on the provisions outlined in its Safe Harbour and Penalty Relief Guidance..

The changes provided in the December 2023 OECD Administrative Guidance (eg for hybrid arbitrage arrangements) are not included.

Article 8.11 of the Law includes the Simplified Calculations for NMCEs – subject to further rules to be issued.

Article 8.2(9) provides for a high-level QDMTT Safe Harbour.

Domestic Minimum Tax

Chapter III of the Law provides that Curacao will apply a domestic minimum top-up tax (DMTT) (intended to be a QDMTT) for financial years beginning on or after December 31, 2024.

Article 3.1 of the Law provides that the DMTT will be levied on:

-the parent entity established in Curaçao whose interest is not directly or indirectly held by another parent entity established in Curaçao; or

-if there are multiple parent entities established in Curaçao or there are other group entities established in Curaçao, a group entity established in Curaçao will be designated for DMTT filing and payment that purpose by the group or the Tax Authority.

Under Article 3.2 of the Law, the DMTT can be calculated using an accepted financial reporting standard or an authorized financial reporting standard instead of the financial reporting standard used in preparing the consolidated financial statements of the UPE.

Tax paid or incurred by a Constituent Entity-owner under a CFC Tax Regime that is pushed down to a domestic Constituent Entity in the GloBE Rules must be excluded, as provided in the OECD Administrative Guidance. The OECD Administrative Guidance also restricts the push-down to hybrid entities and for taxes on distributions (aside from domestic withholding tax on distributions).

This preserves Curacao’s primary right to tax income accruing to a Curacao member entity which is also a CFC. If there were no statutory derogation from the general GloBE rules for the calculation of the domestic minimum tax, and the CFC tax paid by the controlling company abroad were included in the included taxes of the Curacao CFC, the effective tax rate would be increased. Therefore, excluding the CFC tax from the Curacao CFCs covered taxes allows Curacao to tax low-taxed income at a higher rate than would be the case under an IIR.

Article 7.5(9) of the Law provides that further Rules will be issued to restrict the allocation of taxes to PEs and CFCs for DMTT purposes.

Article 14.2 of the Law applies the international activity exemption for DMTT purposes.