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
TEXT SIZE - +

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

Multimedia Anti-Keystone XL Protests Continue

Demonstrators are worried about pipeline's effect on climate change, their traditional way of life, health and safety More

Thailand's Political Power Struggle Continues

Court gave Prime Minister Yingluck Shinawatra until May 2 to prepare her defense over abuse of power charges but uncertainty remains over election timing More

Malaysia Plane Search Tests Limits of Ocean Mapping Technology

Expert tells VOA existing equipment’s maximum operating depth is around 6 kilometers as operation continues on ocean bed for any trace of MH370 More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Pet Kangaroo Helps Spread Environmental Messagei
X
Penelope Poulou
April 22, 2014 5:53 PM
Children’s author Julia Heckathorn travels the world to learn about different ecosystems and endangered animals. She pours her knowledge into children’s books, hoping the next generation will right the environmental wrongs of our times. As in many children's books, the main character in Heckathorn's stories is an animal. Unlike those other characters, though, this one is real - a kangaroo, that lives in the author’s backyard. VOA’s Penelope Poulou has more.
Video

Video Pet Kangaroo Helps Spread Environmental Message

Children’s author Julia Heckathorn travels the world to learn about different ecosystems and endangered animals. She pours her knowledge into children’s books, hoping the next generation will right the environmental wrongs of our times. As in many children's books, the main character in Heckathorn's stories is an animal. Unlike those other characters, though, this one is real - a kangaroo, that lives in the author’s backyard. VOA’s Penelope Poulou has more.
Video

Video Pro-Russian Separatists Plan 'Federalization Referendum' in Eastern Ukraine

Pro-Russian separatists in eastern Ukraine say they plan to move forward next month with a referendum vote for greater autonomy, despite the Geneva agreement reached with Russia, the U.S. and Ukraine to end the political conflict. VOA's Brian Padden reports from the city of Donetsk in Eastern Ukraine.
Video

Video Pope Francis Hopes Dual Canonizations Will Reconcile Church

On April 27, two popes - John the XXIII and John Paul II - will be made saints in a ceremony at St. Peter’s Square. VOA religion correspondent Jerome Socolovsky says the dual canonization is part of the current pope’s program to reconcile liberals and conservatives in the Roman Catholic Church.
Video

Video In Capturing Nature's Majesty, Film Makes Case for Its Survival

French filmmaker Luc Jacquet won worldwide acclaim for his 2005 Academy Award-winning documentary "March of the Penguins". Now Jacquet is back with a new film that takes movie-goers deep into the heart of a tropical rainforest - not only to celebrate its grandeur, but to make the case for its survival. VOA's Rosanne Skirble reports.
Video

Video Boston Marathon Bittersweet for Many Runners

Monday's running of the Boston Marathon was bittersweet for many of the 36,000 participants as they finished the run that was interrupted by a double bombing last year. Many gathered along the route paid respect to the four people killed as a result of two bombings near the finish line. VOA's Carolyn Presutti returned to Boston this year to follow two runners, forever changed because of the crimes.
Video

Video International Students Learn Film Production in World's Movie Capital

Hollywood - which is part of Los Angeles - is the movie capital of the world, and many aspiring filmmakers go there in hopes of breaking into the movie business. Mike O'Sullivan reports that regional universities are also a magnet for students who hope to become producers or directors.
Video

Video Pacific Rim Trade Deal Proves Elusive

With the U.S.-led war in Iraq ended and American military involvement in Afghanistan winding down, President Barack Obama has sought to pivot the country's foreign policy focus towards Asia. One aspect of that pivot is the negotiation of a free-trade agreement among 12 Pacific Rim nations. But as Obama leaves this week on a trip to four Asian countries he has found it very difficult to complete the trade pact. VOA's Ken Bredemeier has more from Washington.
Video

Video Autistic Adults Face Housing, Job Challenges

Many parents of children with disabilities fear for the future of their adult child. It can be difficult to find services to help adults with disabilities - physical, mental or emotional - find work or live on their own. The mother of an autistic boy set up a foundation to advocate for the estimated 1.2 million American adults with autism, a developmental disorder that causes communication difficulties and often social difficulties. VOA's Faiza Elmasry reports.
AppleAndroid