Wednesday, 19 September 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.

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