Wednesday, September 19, 2012

What's So Wrong with the St. Kitts & Nevis Investor Citizenship Plan?

Allison recently blogged about a plan from St. Kitts & Nevis to grant citizenship to investors in a hotel recently opened there.  This is seen by some as a fundamental threat to democracy, sovereignty, and all other forms of good things.  Apparently, the reason is supposed to be self-evident.  Unfortunately, I am having trouble seeing it.

For decades, countries have been told that the problem with tax havens is that income is allocated to them with no "real" corresponding economic activity.  Proposals to fight this have included punishments for taxpayers who invest in countries without "real" economic activity and a shift from transfer pricing to formulary apportionment based on "real" economic factors such as sales.  The theme seemed pretty clear - real economic activity is necessary to apply tax laws.

So St. Kitts & Nevis found a way to build a real hotel really located in the real country.  Isn't this exactly what all these people wanted?

Perhaps what bothers some is the appearance that a state seemingly "sold" its citizenship, and that states should not use their sovereign powers for such crass ends as private economic gains.  But how is this any different than the state of Connecticut using its sovereign eminent domain power to take land away from poor, local residents and give it to a wealthy out-of-state private corporation?  There is no doubt (at least according to the Supreme Court) that this is just fine - so how is it any different from what St. Kitts & Nevis is doing?

Similarly, the United States has no problem granting citizenship to engineers or other high-skilled people (including its own investor visa program), while it denies citizenship to poor migrant workers.  What's the difference?  Should St. Kitts & Nevis only be allowed to grant citizenship to poor, unskilled people and leave the wealthy and skilled to countries such as the United States and United Kingdom?

If a real hotel, really located, and really operating in St Kitts & Nevis is not sufficient to allow St Kitts & Nevis to impose its laws on the hotel's investors (whether good and bad), it is difficult to think of what would be.  Perhaps that is the real threat to sovereignty and democracy.


  1. A couple of points:

    I think one of the attacks more by the author Allison was referring to and not herself was somehow St Kitts and Nevis was "undermining" the US' system of taxation based on citizenship and any other country in the future that wished to go down that route. What funny is there is actually an informal data bank that has started to be maintained of US Citizenship renounciations. I have linked to it here:

    Note the lack of citizenship renounciations from St Kitts and Nevis or many other "tax haven" countries. There is of course another country where a LOT of renounciations are occuring. I have a great deal of disappointment that the US media has not brought light to or made any public attacks on this "other" country so many US citizens would rather be sole citizens of instead of the US(in light of recent US tax policy). In particular nothing is being brought to light of the damage and destruction this "other" country is doing to the US tax base.

  2. Interesting blog post going into some of the issues in more detail:

  3. I actually wasn't aware of the EB-5 Visa program in the United States, I will add a link to it in the post.

  4. A little digging would turn up similar programs in a lot of places I think. It was not my impression that dollars alone could buy citizenship; I thought it usually required some job-creating number, as Tim's second link suggests. So my initial reaction was to the low, low price. But there are lots of issues here, thanks Adam for taking note.

  5. The issue with the "job creation" numbers is just most like company and industry specific subsidies the "actual" numbers tend in fact turn out to be quite low(in some cases more like zero). Especially in the US their are all sorts of businesses in the service sector that can be created with basically nothing other than money. Think restuarant franchises. The main kink in this strategy is the economic downturn has hurt the economics of a lot of these service sector business. Back in the boom years some rich Brazilian could easily move to Florida and startup a couple of Subway franchises with little or no work on their part and sit back by the pool on their oceanfront estate. I also believe that Eduardo Saverin's parents for whatever its worth came to the US on an EB-5. I guess I would St Kitts and Nevis the benefit that are actually being open and honest about it instead of trying to do it in the shadows like so other countries.

    I think you have to put this is the general context of government economic aid and subsidies to business. I think you can find many example even more egregious behavior in terms of US state and local governments. An example I always think is Alabama buying hundred of "loaded" Mercedes Benz cars for its official state vehicle fleet as an incentive for Merceded to build an assembly plant in the state. Even a relatively progressive and supposedly insightful politician such as Deval Patrick of Massachusetts has been a huge backer of state filmmaking tax credit to this day despite many other states discontinuing them. I also have to admit I was an econ major in college so I might have a little bit of a personal bias toward strictly utilitarian approaches to these types of issues.

  6. A Federation of St. Kitts and Nevis citizenship through investment is an ideal opportunity to obtain legal and reliable second passports and citizenship for you and your family. And citizenship in the Federation of St. Kitts and Nevis offer a beautiful tropical local for a permanent or second home if you so choose.

  7. An EB5 is s special American Visa for investors. That, in a nutshell, describes what an EB5 is. This article will provide a few more details about this type of visa including who can apply for it, the process, and how much it costs, as well as the history of the visa eb5 visa