Update Country Report Curaçao 23 Apr 2019

Event

In mid-March the EU excluded Curaçao from its blacklist of countries deemed non-co-operative tax jurisdictions. However, as the territory remains on a "grey list", the EU sent a formal letter to Curaçao's Ministry of Finance, headed by Kenneth Gijsbertha, warning that the island's tax framework must be compliant with international standards by year-end.

Analysis

Although other Caribbean countries were added to the blacklist, Curaçao narrowly avoided inclusion on the EU list by pledging to maintain momentum on improving its tax system. This "high political level" of commitment by the EU was requested to address facets of the island's tax regime that were judged to engender harmful tax competition. In particular, the EU specified practices that are beneficial for non-residents and grant tax advantages to activities removed from the real economy. The EU noted that failure to address these practices and ensure that the tax regime is in line with international tax standards by the end of 2019 would lead to the country's inclusion in its 2020 blacklist.

The island has been reforming its tax system over the past few years to reduce secrecy provisions for businesses and individuals registered in the jurisdiction, and therefore make the island less attractive for those seeking to avoid tax or engage in money-laundering. Previous pledges to the EU led the government to approve legislation to comply with OECD tax standards in 2018.

The avoidance of the EU blacklist is positive for Curaçao. Inclusion in the blacklist would have been an immediate red flag for investors and a detrimental development for the financial services sector. Investors would have incurred additional business costs in terms of enhanced due diligence and compliance, while foreign businesses operating in Curaçao could come under increased scrutiny if they were known to be investing in a designated tax haven.

The negative consequences of being blacklisted will act as an incentive for Curaçao to pursue tax reforms. Improving tax transparency will be positive in the long term for Curaçao's financial services sector, as it will allow companies to continue operating there without penalties. However, in the short term, increased stringency may deter some investors who prefer to operate in secrecy jurisdictions, potentially leading to a short-term drop in revenue from the financial sector.

Impact on the forecast

The country's exclusion from the EU blacklist is in line with our forecast that the government will make gradual progress implementing policies that strengthen financial supervision and transparency.