Exciting tax planning possibilities

This short memorandum deals with the exiting new possibilities arising from (1) the so-called ETVE regime in Spain combined with the fact that a TEIA between Spain and Curacao recently came into force.

Hereunder we will try and connect a Spanish company falling under the scope of

the ETVE regime with a Curacao Holding company and a Netherlands

Antilles tax exempt company.

Important is that, as a consequence of the TEIA between Spain and Curacao countries which has

come in to force recently, the Curacao are no longer blacklisted in Spain.

Elaboration

With the above in mind we will outline the combination of the ETVE status for a Spanish

Sociedad de responsabilidad limitada (S.L.) with the Curacao tax exempt BV

(BV stands for basically the same as Sociedad de responsabilidad limitada). In between

those we will avail ourselves of a “normal” Curacao NV which will act as a

holding company for both entities.

The idea that we would like to bring to the table is that e.g. a company falling under the

scope of the ETVE regime holds (a) qualifying participation(s) in non Spanish resident

subsidiaries. As we understand it the ETVE can in such a situation distribute the

dividends that are obtained from these subsidiaries, to her parent company without

having to withhold tax on these dividends. This parent company cannot be resident in a

tax haven. The Curacao have shed their tax haven status with the Spanish tax

authorities and it is therefore that the parent company could be a Curacao

resident company.

 The Curacao participation exemption however has undergone changes:

The 95% participation exemption for qualifying interests has been replaced by a

100% participation exemption, subject to certain conditions. In order for the

100% participation exemption to apply, the qualifying participation must be

either “subject to tax” or have “enterprise activity / non-portfolio investment”. If

neither condition is met, the participation exemption on dividends will be limited

to 63%.

Also a new, restricted, definition of dividends has been introduced.

The new participation exemption allows for consolidation of the ETVE results with the

results of its subsidiaries before applying for the 100% participation exemption. Also the

limitation to 65% participation exemption is not applicable on situations where dividends

are distributed from subsidiaries of which the assets consist for 95 percent or more of real

estate.

The next step is that the Curacao parent company establishes a tax exempt

BV. This BV is capitalized with the dividends which originate from the non-Spanish

subsidiaries. (For obvious reasons it is important that the Curacao parent

company does not lend the dividends received to the tax exempt subsidiary as there is no

fiscal gain from interest payments whereas the interest payments received would be

taxed).

The tax exempt Curacao BV could then e.g. lend the capital to third parties

or to group companies. Because of the tax exempt status of the BV the interest paying

companies may not be able to deduct the interest paid from their respective taxable

income, as local anti-abuse legislation may be in place, but as the Curacao

tax exempt BV receives the interest taxfree this will make the transaction fiscally neutral.

A source tax may however be due on the outgoing interest payments.