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The Netherlands Antilles and Curacao, the group's dominant island in political and financial matters, got their start as an offshore financial center thanks to a Dutchman named Anton Smeets.
Just before World War II, Smeets, a civil law notary who had worked with the Royal Dutch Shell Group in Curacao, concluded that the Antilles could be a haven for major Dutch companies should the Netherlands be invaded. He persuaded officials in The Hague to set up a legislative system in the Netherlands Antilles under which large Dutch corporations could manage their assets outside Holland within hours of an invasion. At Smeets's recommendation, the Dutch government later allowed offshore companies be taxed at a fraction of domestic rates.
In the 1950s, Smeets, who founded Curacao International Trust Co. (CITCO) in 1948, was instrumental in having a U.S.-Dutch tax treaty extended to the Netherlands Antilles. This permitted international firms which established an Antilles subsidiary substantially to negate U.S. taxes on a range of investments and opened the door to a flood of new offshore companies. Investors were also attracted by the Antilles' status as an autonomous part of the stable, business-oriented Netherlands.
It therefore was a major blow to the islands when the U.S. decided to terminate this tax treaty as of January 1, 1988. The termination was later revised to permit elimination of the 30 percent U.S. withholding tax on interest payments under certain conditions. In general, though, the demise of the treaty led many to fear that Curacao's offshore businesses--which generated some $400 million per year in revenues for the Antilles--would never recover.
STRONG BANKING SECTOR
As things turned out, the opposite was true. Curacao's banks and trust companies (offering services related to the formation and management of a variety of offshore companies with potential tax advantages), provided a strong base for the industry, even as U.S.-related tax treaty business evaporated. European companies, using Curacao's well-established trust and banking skills and taking advantage of many other tax treaties between the Netherlands and other governments, increased their business with Curacao.
As of March 1991 181,895 offshore financial companies were listed in the commercial register of the Curacao Chamber of Commerce. The tax...