Introduction
In view of the coronavirus-crisis, the Central Bank of Aruba restricted all outgoing capital transactions as of March 17th, 2020 (the Restriction). The Restriction has no clear end date.
The Restriction applies to, among others, loans to non-residents, investments abroad, participation in a company abroad, purchase of real estate from a non-resident on Aruba or abroad, transfers of funds by a natural person from a local bank account to a bank account abroad, transfers of funds from a local bank account to a foreign intercompany account (FIA), and miscellaneous outgoing capital transfers a.o. gifts, donations, inheritance. Furthermore, outgoing payment of dividends and outgoing transfer of profits to a non-resident also fall under the Restriction.
Questions arise as to the lawfulness of the Restriction and the extent of the authority of the Central Bank to force restrictions upon Aruba residents. The Restriction may be in conflict with EU legislation.
Background: the Aruba Ordinance on Foreign Exchange Transactions and the General Foreign Exchange License (2013/K.2)
The Aruba Ordinance on Foreign Exchange Transactions (Landsverordening deviezenverkeer) distinguishes between:
- Current account transactions
Current account transactions consist of payments related to the import and export of goods, freight and insurance costs related to international shipping, payments of rent, payments of salary or compensation for work performed, payments on a loan, among others. Current account transactions do not require a license, in principle.
- All other transactions, including capital transactions
All other transactions, including capital transactions, require a license. A General Foreign Exchange License is granted to residents to make transfers to and from their foreign bank account and intercompany accounts through a local bank (Decree 2013/K.2). The Central Bank suspended the Decree 2013/K.2 until further notice.
The Treaty on the functioning of the European Union (TFEU) and the Overseas Association Decision (OAD)
The Netherlands is a member of the Treaty on the functioning of the European Union (TFEU), which is one of two treaties forming the constitutional basis of the European Union.
Aruba, Curacao, and St. Maarten and BES are considered ‘overseas countries and territories’ (OCTs) for which the EU Council Decision 2013/755/EU (Overseas Association Decision, OAD) applies. The OAD stimulates close economic relations between the OCTs and the EU.
Article 63 TFEU:
Article 63, paragraph 1, TFEU states as follows:
‘All limitations in capital transactions between member states and between member states and third countries are forbidden.’
Article 63 TFEU entails an absolute prohibition on any kind of restriction on capital transactions between EU member states and between EU member states and third countries.
The EU Court of Justice decided that Article 63 TFEU is directly applicable to capital transfers from and to OCTs (HvJ 5 mei 2011, Prunus Sàrl, C-384/09, V-N 2011/32.24, p. 20).
Article 59 AOD:
Article 59, paragraphs 2, OAD states as follows:
‘With regard to transactions on the capital account of balance of payments, the Member States and the OCTs authorities shall impose no restrictions on the free movement of capital for direct investments in companies formed in accordance with the laws of the host Member State, country, or territory and shall ensure that the assets formed by such investment and any profit stemming therefrom can be realized and repatriated.’
The Restriction could be in conflict with Articles 63 paragraph 1 TFEU and 59 paragraph 2 OAD
Based on the above, I conclude that the Restriction could be in conflict with Articles 63, paragraph 1, TFEU and 59, paragraph 2, OAD, respectively, because the Restriction applies to outgoing capital transfers, including outgoing transfers in regard to investments abroad or participation in a company abroad, as well as outgoing payment of dividends and outgoing transfer of profits to a non-resident.
The OAD applies only between the EU and the OCTs
In regard to the above, the following should be mentioned.
The OAD applies only between the EU and the OCTs. Moreover, the OAD is not applicable between the Netherlands and the Dutch Caribbean Islands, which is regarded as an internal matter within the Dutch Kingdom (ECLI:NL:PHR:2011: BT1528).