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Michael Pfeifer Speaks with Tax Notes on Foreign Citizenships "For Sale"

March 5, 2013, Tax Notes

Tax Notes recently spoke with Michael G. Pfeifer on the enticements other countries offer wealthy Americans in return for their expatriating to that country.  To view the full article, please go to Tax Notes' website.

Excerpt taken from the article "For Sale: Foreign Citizenship, Maybe Diplomatic Posts," by Shamik Trivedi for Tax Notes

The recent economic downturn was a good time for the very wealthy to expatriate, according to Michael G. Pfeifer of Caplin & Drysdale. With asset values depressed, marking to market meant some individuals recognized very little gain, he said.

Pfeifer said the CBI program for St. Kitts and Nevis is "fairly clean," but that Austria is considered the "gold standard" for expatriation. Austria's CBI program, unlike that of St. Kitts and Nevis, requires an active investment in the country. According to Henley & Partners, an international citizenship-planning firm, significant direct investment in the Austrian economy is required for a grant of economic citizenship. Pfeifer estimated that the amount necessary for investment depends on the circumstances but could range from €3 million to €10 million.

That's a lot of money, but Pfeifer said the benefit of Austrian citizenship is that it allows free and unlimited entry to the United States. Austria is a signatory to the Schengen Agreement, a treaty allowing for free travel within the Schengen area, which includes 26 European countries. Another 42 countries have signed agreements with the Schengen area countries for visa-free travel, including St. Kitts and Nevis and Singapore.

While Austria's individual income tax rate is high, it is on a territorial basis. Accordingly, a well-to-do U.S. expat could reside in a tax haven such as Saint Kitts and Nevis and use her Austrian citizenship to visit the U.S. visafree, Pfeifer said. Austria typically disallows dual citizenship, but it makes an exception for those who obtained their Austrian citizenship economically, enabling someone to take advantage of the low-tax benefits of a tax haven and the travel freedom available with an Austrian passport.

Pfeifer, who in the mid-1990s worked as an adviser to the IRS on expatriate issues, warned that it's not so simple to come back to the United States as a diplomat, no matter how wealthy or powerful the individual is. He used as an example Kenneth B. Dart, the billionaire and former president of Dart Container Co. Dart renounced his U.S. citizenship in the early 1990s and moved to Belize. In 1995 he persuaded Belize to send him back to the United States as a diplomat. The Belize government petitioned the U.S. government to open a consulate in Sarasota, Fla., where Dart lived before he renounced his citizenship. Flummoxed, the State Department wondered why the government of Belize would build a consulate in Sarasota, a place with a limited Belizean population. Someone at the State Department figured it out, Pfeifer said. The U.S. government discovered that Dart would be the consul of the office and that he had offered to pay for the building. Congress urged the State Department to intervene, but the government of Belize withdrew the request before any action was taken.

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