News / USA

Expatriation of Facebook Co-founder Draws Ire

Two workers inside of Facebook headquarters in Menlo Park, CalifTwo workers inside of Facebook headquarters in Menlo Park, Calif
x
Two workers inside of Facebook headquarters in Menlo Park, Calif
Two workers inside of Facebook headquarters in Menlo Park, Calif

Facebook co-founder Eduardo Saverin, who is set to earn billions when the social networking giant goes public on the U.S. stock market Friday, has drawn criticism for renouncing his U.S. citizenship in a move that could save him millions in taxes. The Singapore resident still will end up paying fees, but experts say the benefits of expatriation for Saverin, and many others, may outweigh the costs.


Saverin’s stake in the company is estimated at nearly $4 billion. As a U.S. citizen, he would have been subject to a capital gains tax of about 15 percent, or $600 million.


By giving up his U.S. passport, he’ll avoid that fee, but that doesn’t mean he won’t pay any taxes in what will be the biggest initial public offering of an Internet company in history.

Saverin, and every other income earner who renounces their U.S. citizenship, is subject to an exit tax on all of the assets he owned before expatriating. Just how much he’ll pay is up for debate, according to Michael Graetz, a tax professor at Columbia University in New York.

“The question is when his renunciation of citizenship is effective, and what was the value of that stock at that time. He renounced his citizenship in September, and so he’ll claim that the value was significantly less than the value of the stock on the open market because he had such a large block of stock that he couldn’t have sold it privately,” Graetz explained.

Saverin likely will battle out the valuation of his stock with the U.S. Internal Revenue Service. That court battle apparently is worth it to Saverin in the long-run. His spokesman, Tom Goodman, says the billionaire has found it more “practical” to become a resident of Singapore, which doesn’t have a capital gains tax.

Goodman said the move to Singapore was not to avoid taxes.

“He has invested in Asian, U.S. and European companies. He also plans to invest in Brazilian and global companies that have strong interests in entering the Asian markets.  Accordingly, it made the most sense for him to use Singapore as a home base,” he said in a press statement.

The countries where those companies are based could charge some withholding taxes, but Saverin is not obligated to pay taxes to Singapore for income earned overseas. The Brazilian-born businessman won’t be paying taxes in his home country, either. The United States is the only major economy that taxes its citizens, wherever they are in the world, not just its residents - a practice that began to raise money during the American Civil War of the 19th century.

Saverin’s story, now made infamous by the Oscar-winning film The Social Network, is the stuff of American dreams. The son of a wealthy Brazilian businessman, he moved to the United States as a child to escape the threat of being kidnapped for ransom. Saverin became a U.S. citizen, and attended Harvard University, where he and Facebook co-founder Mark Zuckerberg hammered out plans for what would become the most popular social networking site in the world.

A falling out with Zuckerberg lead to his removal from Facebook in 2005, which sparked a major legal battle that resulted in him owning about four-percent of the company.

His decision to leave the U.S. has stirred ire from critics like tech blogger David Gewirtz, who slammed Saverin for how he “played the system.”

“Going so far as to renounce the incredible gift of citizenship we gave to this man, and by doing so, saved him from kidnap gangs in his native country, that’s below reprehensible,” he wrote on his blog, ZDNet Government. “Justice would be to take away his stock benefits if he renounces his citizenship. Justice would be to block him from raking in all that cash if he’s not willing to pay his fair share.”

Saverin’s move is not against the law. He is committing tax avoidance, not tax evasion, according to Reuven Avi-Yonah, the director of the University of Michigan’s International Tax Program.

“It’s clearly legal. Congress passed this law in 2008, that said that if you are a U.S. citizen living overseas, you are permitted to relinquish your citizenship and pay an exit tax,” he said.

Before there was an exit tax, Avi-Yonah says expatriates had a prolonged financial commitment to the U.S.

“You had to continue to pay taxes if you were a U.S. citizen for 10 years, unless you could prove to the U.S. that the reason you expatriated was not because of taxes. And low and behold, everybody was able to prove that they expatriated not because of taxes but for some other reason,” he said.

Avi-Yonah says before the law was passed, people felt it was unpatriotic to renounce, but now it’s just a matter of calculating the price.

“Congress put a price on it, and if the price is good enough, then you pay the price,” he said.

Saverin is among 1,780 people who renounced their U.S. citizenship in 2011, a massive jump from the 235 who expatriated in 2008, according to the U.S. Department of Treasury.

Whether that number climbs, Avi-Yonah says, is not just a matter of money. Living in the U.S. is pretty desirable, he says, and even those who want to live outside the country still value a U.S. passport.

It’s a connection you can’t get online.

You May Like

Video Five Patients Given Experimental Ebola Drug Said To Be Improving

Experimental drugs have been tried on six people: three Westerners and now, three African pyhysicians More

Video In Ukraine, Fear and Distrust Remain Where Fighting has Stopped

As Ukrainian military reclaims control of eastern cities residents rebuild their lives, but many say everyone is being treated with suspicion More

Video In Rural Kenya, Pressure Builds Against Female Circumcision

Girls learn to object; FGM practitioners face penalties from jail sentences to stiff fines More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Five Patients Given Experimental Ebola Drug Said to Be Improvingi
X
Carol Pearson
August 19, 2014 11:43 PM
The World Health Organization has approved the use of experimental treatments for Ebola patients in West Africa. The Ebola outbreak there is unprecedented, the disease deadly. The number of people who have died from Ebola has surpassed 1,200. VOA's Carol Pearson reports on the ethical considerations of allowing experimental drugs to be used.
Video

Video Five Patients Given Experimental Ebola Drug Said to Be Improving

The World Health Organization has approved the use of experimental treatments for Ebola patients in West Africa. The Ebola outbreak there is unprecedented, the disease deadly. The number of people who have died from Ebola has surpassed 1,200. VOA's Carol Pearson reports on the ethical considerations of allowing experimental drugs to be used.
Video

Video In Ukraine, Fear and Distrust Remain Where Fighting has Stopped

As the Ukrainian military reclaims control of eastern cities from pro-Russian separatists, residents are getting a chance to rebuild their lives. VOA's Gabe Joselow reports from the town of Kramatorsk in Donetsk province, where a sense of fear is still in the air, and distrust of the government in Kyiv still runs deep.
Video

Video China Targets Overseas Assets of Corrupt Officials

As China presses forward with its anti-graft effort, authorities are targeting corrupt officials who have sent family members and assets overseas. The efforts have stirred up a debate at home on exactly how many officials take that route and how likely it is they will be caught. Rebecca Valli has this report.
Video

Video Leading The Fight Against Islamic State, Kurds Question Iraqi Future

Western countries including the United States have begun arming the Kurdish Peshmerga forces in northern Iraq to aid their battle against extremist Sunni militants from the Islamic State. But there are concerns that a heavily-armed Kurdistan Regional Government, or KRG, might seek to declare independence and cause the break-up of the Iraqi state. As Henry Ridgwell reports from London, the KRG says it will only seek greater autonomy from Baghdad.
Video

Video In Rural Kenya, Pressure Builds Against Female Circumcision

In some Kenyan communities, female genital mutilation remains a rite of passage. But activists are pushing back, with education for girls and with threats of punishment those who perform the circumcision. Mohammed Yusuf looks at the practice in the rural eastern community of Tharaka-Nithi.
Video

Video For Obama, Racial Violence is Personal Issue

The racial violence in the St. Louis suburb of Ferguson is presenting U.S. President Barack Obama with an issue to which he has a deep personal connection. To many Americans, Obama's election as America's first black president marked a turning point in race relations in the United States, and Obama has made ending the violence a policy priority. On Monday he issued a new call for calm and understanding. Luis Ramirez reports from the White House.
Video

Video Clinton-Obama Relationship Could Impact 2016 Election

President Barack Obama and former Secretary of State Hillary Clinton have a long and complicated relationship. That relationship took another turn recently when Clinton criticized the president’s foreign policy. VOA National Correspondent Jim Malone reports there is renewed attention on the Clinton-Obama relationship as Hillary Clinton considers running for
Video

Video Iran Looks to Maintain Influence in Baghdad With New Shia PM

Washington and Tehran share the goal of stopping Syrian-based militants in Iraq. But experts say it's Iran, not the United States, that will most influence how the new government in Baghdad approaches internal reforms and the war in Syria. VOA State Department Correspondent Scott Stearns has the story.

AppleAndroid