Renouncing citizenship: Did Eduardo Saverin do anything wrong?

http://www.economist.com/blogs/democracyinamerica/2012/05/renouncing-citizenship?fsrc=scn/tw/te/bl/dideduardosaverindoanythingwrong

by antonellis • 14 years ago

43 67 14 years ago

economist.com

kika• 14 years ago

I wonder what Eduardo could have done wrong. He came to the US as a wealthy man, paid for the education, invested his money into stock trading then invested his proceeds into some flimsy venture written in PHP and created thousands of jobs and billions of wealth for risky investors. Now he's heading for the exit and going to buy an exit ticket worth half a billion dollars. Instead of creating some obscure umbrella corporation in some shady overseas jurisdiction, "sell" his shares to it and do not pay a dime. And now they call him having no respect and appreciation for his foster country. I'll never manage to understand these commies.

rdtsc2• 14 years ago

I would guess a lot of it is envy disguised as patriotism.

zmitri• 14 years ago

I don't think he did anything wrong... but, personally, as an immigrant in the United States it's tough to swallow.

I'm currently in H-1B status and work for a top tier hedge fund. I recently resigned because I decided it was time to go full on with my own company, and even though I have lived here for 2 years, paid my share of taxes, and have enough saved up to support myself for at least 1.5 to 2 years, if I don't succeed/raise money to sponsor my own H1B in the next few months (or take a new job) there's a chance I will have to go home.

Oh, and even getting a chance at getting those few months, is dependent on the USCIS approving my change in status from a specialist worker to a "tourist."

There's just so little room for error as an immigrant, but the fact that you can make lots of mistakes is one of the things that makes the US so awesome for gutsy Americans.

Immigration is a messed up thing and it's just sad to see someone throw a citizenship away that so many people would fight like crazy for. I doubt he would have gotten that first chance to make it big anywhere else.

rdtsc2• 14 years ago

It is very hard to comprehend for us what it is like to have wealth approaching billions of dollars. Citizenship doesn't matter anymore. You become a citizen of the world if you wish. You can own your own plane or own shares in a plane.

You can live in Singapore, visit Monaco for a weekend, then quickly fly back. You can have a team of lawyers and servants on hand. Planning and advising what citizenships to gain and which ones to lose. I think this was just one advice he received and he let them set it up for him.

With that much wealth, taxes all of the sudden are handled differently. The money you can pay a team of tax lawyers and accountants to offshore it, and protect it, is a drop in the bucket, compared to the tax you'd pay. You'd be a fool not to do it.

But year, at first, as someone who also jumped through years of red tape to gain citizenship, this is baffling, but you have to realize these individuals live in a different world, by different rules.

romeodelight4• 14 years ago

Singapore doesn’t have a capital gains tax.

At 15% long-term capital gains tax rate on $3.84B (4% of Facebook),

He saved $576 Million by giving up his citizenship and moving to Singapore.

rudiger2• 14 years ago

Not exactly. He's paying some tax now, while Facebook is still private. It's just that once it's public, the value of his stake will be much more transparent and so he'll have to pay more taxes.

patio11• 14 years ago

America has a weird uncanny valley of citizenship statuses. For all intents and purposes there are no (+) immigration laws if you're very rich or fairly poor, but if you're comfortably middle class and/or otherwise trying to establish a life here you're in for a Kafkaesque nightmare. Ironically, the political will for imposing that bureaucratic craziness is almost wholly a reaction to the total inefficacy of the system at the lower end of the scale.

salimmadjd• 14 years ago

I'm an immigrant myself and I owe everything I have to USA! There is almost no other country in the world, where an immigrant can make as much impact as a native person can.

For this opportunity we should give back as much as we can.

dantheman5• 14 years ago

Giving back != paying taxes

hnwh4• 14 years ago

And are you still paying taxes on your American income to you r home country? B/c that's how tax laws work for the US. If you really believe what you're saying, send 30% of your income to your home country, just because you're loyal like that. Also stop taking deductions from your American taxes, just so you can help out the govt. And if ever you decide to move back to your original country but keep your US citizenship/green card, don't forget to send 30% of your foreign income to the US every year for the rest of your life. Because you owe everything to the US, right? Thanks

maercsrats• 14 years ago

Fuck'em. It was a dick move given all the opportunities he got in this country. I prefer rich people more like this: http://www.thedailybeast.com/articles/2012/04/30/stephen-kin...

earbitscom• 14 years ago

If American infrastructure invented Facebook then American infrastructure would have invented Facebook.

bermanoid• 14 years ago

Actually it did, and it was called the Harvard Connection, but a scam artist of a contractor thought it was a good idea and lead the founders on as if he was putting the finishing touches on the site to delay their launch and them settled that crime for pennies on the dollar, and here we are.

How complicit Saverin was in this crime is questionable, but it's clear that Zuckerberg knew exactly who he was "fucking" (his words) and how from his IMs.

newbie12• 14 years ago

Saverin's exit is a warning sign, a symptom of a growing sickness in America. All of the envious, hateful attacks on the "top 1%" and the likely prospect of punitive new taxes to support our out-of-control entitlement state make entrepreneurs like Saverin a target, and he knows it.

Aloisius2• 14 years ago

Yes, the out of control entitlement state which collects... significantly less taxes than most of the 20th century.

I hate to sound like a populist, but for goodness sake some perspective is necessary.

dantheman5• 14 years ago

There's a difference between tax rate and effective tax rate; the high taxes of yore were never really paid by anyone with money.

javert• 14 years ago

AFAIK your claim is factually untrue by a very large margin. Care to explain?

orangecat• 14 years ago

Yes, the out of control entitlement state which collects... significantly less taxes than most of the 20th century.

Spending is just deferred taxation, and spending keeps going up. Yes, after adjusting for population and inflation: http://www.usgovernmentspending.com/spending_chart_1970_2017...

mikeash6• 14 years ago

Is it really that awful to want wealthy people to pay at least as much in taxes as the middle class?

dantheman5• 14 years ago

They pay way more total money, and most people are complaining about capital gains taxes but that's not really income is it? It's risked capital that has already been taxed at the corporate rates.

waterlesscloud3• 14 years ago

"The average tax rate, including payroll taxes, for the middle 20 percent of U.S. families will be 15.9 percent in 2015, according to an estimate by the Tax Policy Center, a nonpartisan research group in Washington."

Saverin's paying 15%. Sounds like the goal is met.

13rules• 14 years ago

Completely agree! This is the result of the short-sightedness of a liberal, progressive, tax-the-rich policy. California has already seen what happens when you keep raising taxes, now it's happening countrywide. Wouldn't we rather keep Eduardo and his billions in the US to spend and invest here?

Alienz• 14 years ago

As long as he didn't broken any law, and he didn't regret what he did, why someone would say he did anything wrong?

You may think, he earn his money in the US soil and he should contribute back to the US people. Morally correct. However, if that means he have to fund the US government by paying tax and portion of that money eventually used for launching a war in the middle east, I also think legally avoiding tax to the government is morally correct.

Drbble2• 14 years ago

Taxes don't fund war. Borrowing funds war.

sokoloff2• 14 years ago

Taxes are the basis for repayment upon which those funds are lent to the government. It's like saying the median house isn't bought with income, but rather with a mortgage. Generally true, but try getting a mortgage without any income (now).

davidbanham• 14 years ago

The big idea here is that no other country in the world handles taxes in this way. As far as I'm aware, no other country is as aggressive as the US in taxing income earned by it's citizens while working overseas.

spullara• 14 years ago

He "earned" the money in the US and only our deferred tax model on stocks allowed him to extract the value much later. I wonder if we will ever just tax the actual options, shares or RSUs by number rather than by their dollar value.

greeneggs• 14 years ago

I don't see how this is relevant. Just because no other country taxes in the same way as the US, doesn't make it acceptable to dodge US taxes. You don't get to choose what laws you follow based on what other countries' laws are. I paid my taxes when I was working abroad, and find it really annoying that billionaires are skipping out. In any case, the work was all done while he was a US citizen, even if he deferred realizing his gains. If this is becoming standard practice among the wealthy, then the US needs to restrict immigration more tightly.

jonshea2• 14 years ago

By my math, Eduardo Saverin doesn’t avoid any tax at all by leaving the US, regardless of whether or not his stock goes up or down. If he leaves, the US takes 15% of his stock now. If he stays, the US takes 15% of his stock later. But either way, the US have taken away 15% of his ability to spend.

Let’s work through it with numbers, in case that isn’t clear. Say Saverin has $100 worth of Facebook stock. He renounces US citizenship. He sells enough stock to pay $15 to the government, leaving him with $85 in Facebook stock. Over the next year, Facebook doubles in value, leaving him with $170 in stock. He cashes out, and there’s no tax, so he ends up with $170 in cash.

Now imagine he stays in the US. He has $100 in Facebook stock, which he pays no tax on because there is no taxable event. Facebook doubles in value over the next year, so he ends up with $200 in stock. Then he cashes out, paying 15% in capital gains, leaving him with $170 cash.

Clearly he ends up with the same amount of cash either way. Perhaps Saverin is avoiding tax by leaving the US, but neither this article nor any other article I have read identifies how he is doing so.

seats• 14 years ago

See this comment below. Also you could make the case that you are locking in the 15% LT cap gains rate, which could and likely will increase at some unknown point in the future.

>> The numbers on and analysis of his tax liability in the article are demonstrably wrong - at a level of error unworthy of The Economist. His tax liability is calculated on the value of the stock as of the date he renounces citizenship, which was last September. Today, Facebook is worth maybe $100 billion. Early this year, a private equity offering put the value at $50 billion. Last fall, who knows, and it's all subject to negotiation with the IRS - my guess is no more than $25 billion. That means he evades 75 % of the tax bite by renouncing citizenship, and will be paying at most maybe $125 to $150 million of that $500 to $600 million tax liability he would owe if he sold all his stock next week.

jonshea2• 14 years ago

If we assume that Saverin had to pay his taxes by selling shares at the same price at which the IRS assessed then, then my logic still holds. Saverin would have to sell 15% of his stock to pay the 15% tax.

If, as you suggest, he is able to sell his shares at a greater valuation than the IRS uses to calculate his exit tax, then you are correct. When you renounce your citizenship, I have no idea how long the IRS gives you to actually pony up the exit tax.

rudiger2• 14 years ago

Here's how he's avoiding taxes:

He's making this move before Facebook is public.

Once Facebook is public, the value of his stake is much more transparent (and harder to fool around with). In your first example, the valuation of a privately-held company determines the exit tax. In your second example, Facebook is a public company and its valuation is determined by a public market. Singapore has no capital gains tax, so if he exits now with the lower private company valuation, he won't pay taxes on the difference.

jebblue2• 14 years ago

Legally or morally? Legally, I'm not a lawyer but I would guess not. Morally, he has to live with the decision he made oh and legally too since renouncing US citizenship is permanent (as far as I can understand the government site I read).

sdm• 14 years ago

Since when has not being an American citizen made you immoral?

jebblue2• 14 years ago

I was referring to the tax question at the heart of the debate. I'm not the most articulate person, perhaps moral is not the best or most appropriate word but it doesn't feel that far off.

bradleyjg2• 14 years ago

I'm not saying he did anything wrong, but it is a bit of a slap in the face. I think the US should have a policy of not admitting renouncers to the country under any status.

jamespcole2• 14 years ago

lol, overreact much? People change citizenship all the time for various reasons, finance, marriage, lifestyle, work etc. it would be crazy to block people from returning. Personally I'd take Singapore over the US any day of the week if I was choosing somewhere to live and had that kind of money(Singapore is an expensive place to live).

hnwh4• 14 years ago

what happened to "land of the free", as in freedome to decide where you live and your citizenship?

bradleyjg2• 14 years ago

No one can stop you from renouncing your citizenship, but if you do you are are an alien. Ask some aliens how easy it is to get a visa to the US. If you voluntarily put yourself in that category at very least you should be at the back of the line.

kinkora• 14 years ago

It seems people have missed the article where Eduardo explains why he renounced his citizenship:-

http://news.ycombinator.com/item?id=3972209

pasbesoin• 14 years ago

I'm not in a position to evaluate this, but I have seen other reporting to the effect that U.S. citizens are facing increasing challenges in investing abroad, in as much as foreign entities don't want the complications in reporting (and attendant risk) mandated by the U.S. government and its IRS. (Which is the main point in the parent's linked thread that posts a WSJ article).

patrickgzill• 14 years ago

Thomas Jefferson:

"Our ancestors... possessed a right, which nature has given to all men, of departing from the country in which chance, not choice, has placed them, of going in quest of new habitations, and of there establishing new societies, under such laws and regulations as, to them, shall seem most likely to promote public happiness"

pwim• 14 years ago

There are only two countries in the world that tax non-residents: America and Eritrea.

http://renunciationguide.com/Citizenship-Based-Taxation-Inte...

As there is no representative for American citizens abroad (they can vote in Federal elections, but the district is based on place of last residence), this is essentially taxation without representation.

Saverin has lived in Singapore since 2009. He renounced his citizenship in 2011. http://en.wikipedia.org/wiki/Eduardo_Saverin

Given the situation, I don't see why he would keep American citizenship.

tomjen3• 14 years ago

Of course not.

And I don't want to hear complaints from people who haven't paid at least 500 million in taxes.

He has done much more for the us than has most people on welfare. They certainly haven't paid their fair share.

rsanchez1• 14 years ago

Objectively, he didn't do anything illegal. He just wants a bigger chunk of his cash. The problem people have is that the cash is going to a "1%"er, instead of lining the pockets of career politicians in Washingon, er, I mean paying for the health care of the poor.

Coswyn• 14 years ago

Ethically, yes. Legally, no.

Renouncing citizenship: Did Eduardo Saverin do anything wrong?

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