Monday, January 28, 2013

How a tax haven is born

Can $1.1 billion buy you a country?  Some investors want to try it, by buying Belle Island, currently a Detroit park, and turning it into a tax haven.  Here's the plan:

Looks like Manhattan. The idea:
The 982-acre island would then be developed into a U.S. commonwealth or city-state of 35,000 people with its own laws, customs and currency.
Come on now. There is a whole city there, it's called Detroit, it's full of buildings and infrastructure that are underused, just waiting for investment.  You don't want to invest in that, though, because that would entail accountability to others and-gasp--paying taxes (well, maybe--after incentives and subsidies, maybe not). It's so much easier to make profits if you don't have to pay taxes or observe other regulatory standards such as those protecting worker's rights, the environment, etc. What you want is a regulatory haven that is conveniently located to your clients, that isn't tainted with the tax haven moniker, and that won't be caught up in any global anti-tax evasion net.  Offshore, but in your own backyard, and not treated like the rest of offshore (otherwise what is the point).  A US commonwealth or city-state just about does the trick...ingenious!

Have any doubts that this is about building a tax haven?  Just read to the end of the article:
Here's the scenario for the Commonwealth of Belle Isle that Lockwood and others want to see: Private investors buy the island from a near-bankrupt Detroit for $1 billion. It then would secede from Michigan to become a semi-independent commonwealth like Puerto Rico and the Northern Mariana Islands. 
Under the plan, it would become an economic and social laboratory where government is limited in scope and taxation is far different than the current U.S. system. 
There is no personal or corporate income tax. Much of the tax base would be provided by a different property tax — one based on the value of the land and not the value of the property. 
It would take $300,000 to become a "Belle Islander," though 20 percent of citizenships would be open for striving immigrants, starving artists and up-and-coming entrepreneurs who don't meet the financial requirement. 
I called the Honduras charter city little more than a glorified gated community; this is clearly the same. An economic and social laboratory?  Hardly--add it to a long list of contenders.  The story says "City officials are likely to reject the plan." Too bad, because it would be fun to watch the US open its own tax haven even as it tries to shut down all the others.

1 comment:

  1. I remember a few years back when Ontario Finance Minister and MPP for Windsor, Dwight Duncan did a big press conference in Windsor touting the big cuts in both Ontario and Federal(Canada) corporate tax rates implying that Windsor could be considered a "tax haven" to "high tax" Detroit. The press conference was done with the Detroit skyline right in the background. Unfortionately as you and I know comparing Canada or any other non US country's nomimal corporate tax rate to that of the US is really irrelevant.