Senator proposes 30% anti-Eduardo-Saverin tax

http://www.bloomberg.com/news/2012-05-17/schumer-proposes-tax-on-people-like-facebook-s-severin.html

by hkmurakami • 14 years ago

33 69 14 years ago

sp3323• 14 years ago

"Tax avoidance"? He doesn't even live here anymore. Remind me again why he's paying any taxes?

ahelwer• 14 years ago

The U.S. has a citizenship-based taxation system, so citizens must pay taxes regardless of residence. The U.S. shares this policy with exactly one other country in the world, Eritrea.

You can critique this policy (and many do), but this new Schumer proposal is an extension of it, not a change in direction.

recursive• 14 years ago

We're not talking about citizens paying taxes. We're talking about ex-citizens. I seem to recall hearing something about "no taxation without representation" somewhere before.

jonknee• 14 years ago

He doesn't live here and isn't a citizen. The number of non-native, former citizens who end up to be instant billionaires has to be a very small group (likely a party of 1)... To make any law that addresses it is inane.

jlcx• 14 years ago

My interpretation of that would be that if we already have one of the world's harshest tax policies in that regard, why would we want to have a reputation for being even worse? Do we want to make productive foreigners even more wary of acquiring US citizenship?

cafard• 14 years ago

How about a 5% anti-Chuck-Schumer tax, whereby any elected representative would be charged a 5% higher marginal rate if it could be shown that he had been proposing bills for show rather than for use.

eli2• 14 years ago

The most dangerous place in Washington is between Chuck Schumer and a camera. (I got that joke from one of his Hill staffers.)

But yeah, this seems like something that is both extremely rare and Not A Problem.

hkmurakami2• 14 years ago

Expatriating upon IPO may be somewhat uncommon, but renouncing citizenship for various money-saving reasons is more common than we may expect. One prominent example would be George Soros, similarly moving to Singapore a few years ago. (I believe his excuse was that Asia will be the center of the world in the future, and he wanted his children to be educated there, or something along those lines).

As Federal Income Tax, Capital Gains Tax, and Qualified Dividend Taxes increase, we will most likely see more of these flight-from-tax acts, not fewer.

DanBC• 14 years ago

Much more troublesome, to me, are companies that operate in some country (with staff and buildings) but which are registered in some other tax haven, thus avoiding the need to pay taxes.

While legal it's sleazy.

toyg• 14 years ago

And that's where the real money is, so you'll never hear anyone proposing bills to address that. Enforcing decency is left to understaffed and underfunded national collection agencies.

Repeat after me: the problem is not personal income tax, but rather corporate tax, especially when abused to mask personal income.

raverbashing• 14 years ago

Yeah

Because Eduardo is not paying any exit tax based on capital gains he would have by selling his stock at the moment. Oh wait he is!

"Oh but the value of the stock may increase!" Yes, but it can also decrease.

waterlesscloud2• 14 years ago

He'll get a refund if it decreases. I'm sure of it.

beagle311• 14 years ago

Do you have any basis for being so sure?

I know of tens of people who owed capital gain taxes on IPO shares they couldn't even sell (due to SEC rule 144, look it up), the shares tanked, and they were still on the hook for taxes even though their best realizable profit ended up less than what they owed in taxes.

Yes, the US tax system is f*cked up in multiple ways. I'm not aware of any other country in which you can strike gold in an IPO as a founder, investor, or employee, and -- due to a market event outside of your control -- face a tax bill strictly larger than you could ever have legally derived. (again, look up SEC rule 144)

No, this is not fiction - I was luckily saved from such a fate by virtue of the "exit" event (an acquisition) happening before July; had it happened a few days later (July 1st or later), I would have lost money on an investment with a nice 3x-8x return (depending on how you measure). In the end, I didn't lose money, but hardly profited.

I know others who weren't so lucky, and if you (or someone you know) were in the tech scene/bubble in San Francisco in 2000-2001, you probably do too.

vibrunazo• 14 years ago

Isn't he renouncing US citizenship because Singapore doesn't allow dual citizenship? Was keeping US citizenship while living there even an option for him?

mhartl2• 14 years ago

That's not why. You can live in Singapore as a permanent resident for the price of starting a corporation ($150), which then simply hires you as an employee. Or you can have $20m and qualify for an investor exception—for which I'm pretty sure Saverin qualifies. (Note: The above numbers are from memory and may not be exact, but they're in the right ballpark.)

hazov• 14 years ago

He still is a Brazilian citizen[1], non-resident Brazilians don't pay any income tax as far as I know.

[1] http://www.bloomberg.com/news/2012-05-12/facebook-co-founder...

EDIT: added "tax".

rbn• 14 years ago

He was born in Brazil and has Brazilian citizenship. So that's not the case

patrickgzill• 14 years ago

Be interesting to go through Chuckie's list of Top 100 corporate donors and figure out which ones are using "Double Irish" and similar schemes to avoid taxes.

Maybe he should refuse money from such companies? (will not happen of course!)

debacle• 14 years ago

If someone renounces citizenship, the loss of freedom in the nation they were once a citizen of should be loss enough.

snorkel• 14 years ago

Today's bandaid to a small problem is tomorrow's income tax nightmare. See AMT tax.

mhartl2• 14 years ago

The tax revenues we're talking about here are roundoff errors to USG. This is just pure spite.

crazygringo• 14 years ago

The three most important points to me:

1) Saverin doesn't live here any more. So why does Schumer care?? The guy already paid his exit taxes.

2) Saverin was never even originally a US citizen in the first place -- he's Brazilian.

3) "enforcing Schumer’s proposal might run up against the “perpetual problem of trying to figure out what’s in a person’s mind” when he or she give up U.S. citizenship." This is key -- using motivation to determine the punishment for a crime seems OK (i.e. degrees of murder). But using motivation to determine whether or not something is a crime, just feels ridiculous.

Kuiper• 14 years ago

"But using motivation to determine whether or not something is a crime, just feels ridiculous."

But there are crimes that are determined by intent. For example, providing incorrect information is not inherently criminal, but knowingly providing incorrect information with the intent of personal gain is considered fraud, which is a crime.

rsanchez12• 14 years ago

Point 3 is the most dangerous. The language you chose is telling, "crime". Schumer seems to want to use Saverin's motivation to determine that giving up citizenship to avoid paying taxes is a crime. Besides it being unconstitutional to legislate against a specific person, what kind of message is Schumer sending? Once you venture into the maw that is the United States tax code, you can't leave without heavy personal losses? That sends the message that your business is not welcome here at best, and is draconian at worse, setting a dangerous precedent for even more oppressive legislation later. But in an era of occupy, Schumer can use all the class warfare arguments he wants to get his proposed legislation passed easily. People will foam at the mouth in anger against this millionaire not paying his fair share, and they'll be completely oblivious of government infringing on civil rights until it's their own civil rights that are taken away, and by then it will be too late to do anything about it.

joelrunyon5• 14 years ago

“It always bothers me when somebody renounces his citizenship in the greatest country on Earth just to save money, save taxes,” Hatch said in an interview. “I was really upset at Eduardo Saverin for doing that, and there are others who are doing it too.” And, he added, “they’re going to rue the day that they did that.”

1) He talks about Eduardo like he knows him - really? Is there any way for him to know why Eduardo really did this (maybe he actually does like Signapore more than the USA).

2) He acts like he personally just got ripped off by Eduardo - I'm not sure laws are best created out of spite.

3) The arrogance that people outside the US have a terrible quality of life is incredibly disconcerting. It leads to a sort of insulated security that comes from telling ourselves we're so great and maintaing the status quo because it's easier instead of looking at other countries that are legitimately competing with us, learning from them and improving.

rprasad7• 14 years ago

It's not a matter of spite--it's the fact that Eduardo's primary claim to life and wealth is due to America: coming to America saved Eduardo's life as a youth after he became the target of Brazilian kidnappers, getting an American education led to the opportunity to be Facebook's angel investor, and the American justice system is the sole reason that Eduardo has any claim to Facebook stock today.

Note: I am not opining in this comment whether Eduardo should be taxed more than he already has been or already will be, I am merely stating the prevailing justification expressed for why people think he's a freeloader.

pan692• 14 years ago

So, you're saying; Saverin owes us. Is that correct?

mentat• 14 years ago

I'm not sure that it follows that the point of the US is to extract taxes indefinitely from those who benefit from a well constructed country. If the structure of the country becomes hostile to a person, they should be able to vote with their feet. It is substantially easier for the rich to do this, but the solution is to make it easier for everyone, both coming and going. Responsiveness should be the goal on every level, local, state, federal.

beagle311• 14 years ago

It is exactly a matter of spite. tl;dr: he is playing by the rules. people are spiteful because they think he is abusing a loophole in those rules (I disagree).

Saverin played by the rules: he legally became a US citizen. He got the related perks (access to education, quality of life, ...) and the related liabilities (The US tax code is onerous, and while it IS competitive with e.g. Europe on a percentage basis, you get much, much less for your taxes).

He is still playing by the rules: he is invoking the "I quit" card. Note that contrary to the media hype right now, he is making a bet: if Facebook loses value between his de-citizenship and the time he can sell (possibly 6 months after IPO, depending on how his stock was allocated and how the IPO is structured), he is going to LOSE money by denouncing his citizenship.

If he is not planning to live in the US, that's perfectly understandable - read about FBAR and FATCA. the tl;dr of those is: you have ridiculously onerous reporting requirements, FOREVER, with penalty 50% of your holding, PER YEAR (that is, if you're decided to be willingly noncompliant for two years, you have to pay your liquid worth; if you are for 4 years -- well, you owe twice as much; and by default you are assumed willingly noncompliant).

Now, whether or not his decision to move out of the US was driven by the US tax code or not, is (or at least, in my opinion, should be) immaterial. Furthermore, since he wants to live in Singapore, he is required to give up his US citizenship to receive a Singapore one.

I find support to this being a matter of spite, is that all proponents of this law that I have heard talk about punishing him and his ilk (in slightly different words).

Ted Arison and Michael Dingman did this in the early '90s and avoided billions in taxes (The wikipedia article claims Arison did pay taxes[citation needed], but I remember the headlines at the time said he didn't, and http://www.nytimes.com/1995/04/12/us/some-of-rich-find-a-pas... indicates that he probably didn't).

Saverin is actually taking a financial risk here, playing by the rules that were enacted, which are not letting him out easily.

It is exactly a matter of spite.

edit: minor rewording one minute after writing.

joelrunyon5• 14 years ago

He became a citizen and he got the benefits of being a US citizen.

Now he's choosing to become a citizen of another country and forfeiting those US citizenship benefits.

Just because you're a citizen, doesn't mean that country owns you – you still can choose to move, leave if you want to.

Saying he's a freeloader discounts basically everything Eduardo has done. I would say the net gain of Eduardo being in the US for the time he was, is significantly bigger than the net loss we'll feel from him leaving – making him the exact opposite of a freeloader.

rsanchez12• 14 years ago

Laws are not best created out of spite. In fact, such laws are unconstitutional. According to the Constitution, "No bill of attainder or ex post facto law shall be passed." The bill of attainder here is attacking Saverin, as Schumer and Hatch have been doing to gain support for their bill, and passing a law making what Saverin did illegal. That they want to charge him 30% capital gains tax is questionable tax policy at best (especially when countries like Singapore with no capital gains tax are luring away money), but that they also want to bar him from visiting the United States for the rest of his life is oppressive.

Hatch's and Schumer's arguments reek of class warfare and exploit patriotism. It's all summarized in the quoted statement, "bothers me when somebody renounces his citizenship in the greatest country on Earth just to save money." It's more than just to save money, Mr. Hatch. The American colonies fought a revolutionary war over taxes, so it's much more than just "to save money."

The only person making any sense in the entire article is Charles Grassley. Saverin's decision should have been a signal to Congress that an overhaul of the tax code is needed, to make taxes more transparent and for real economic recovery. Instead, Schumer and Hatch have taken the opportunity to exploit class warfare and patriotism to grow an already unsustainable government even larger and more oppressive. Instead of looking at other countries legitimately competing with us (like Singapore) and learning from them, Schumer and Hatch are intent on making things worse in the US, and that's a damn shame.

orbitingpluto2• 14 years ago

UN Declaration of Human Rights

Article 13. (1) Everyone has the right to freedom of movement and residence within the borders of each state. (2) Everyone has the right to leave any country, including his own, and to return to his country.

Article 15. (1) Everyone has the right to a nationality. (2) No one shall be arbitrarily deprived of his nationality nor denied the right to change his nationality.

Hyena• 14 years ago

Well... there's also a right to asylum (14), group rights for families, to some form of social maintenance (22), limitation of working hours and minimum wage (24), full and free education (26), to copyright (27). Lastly there are vague duties to your "community" and it has power to determine what justly fulfills a grab-bag of ethical and legal concepts (29).

So... Not the best document in the world to quote on this front.

orbitingpluto2• 14 years ago

Yes and article 16 doesn't explicitly give the rights for same sex marriage.

Viewing the UNDHR as anything more than what should be minimally aspired to strikes me as... well... evil.

Turing_Machine2• 14 years ago

Wow, a modern-day Bill of Attainder/ex post facto law. Someone should acquaint Schumer with Article I, Section 9 of the Constitution of the United States.

Turing_Machine2• 14 years ago

That said, I'm okay with not allowing people who renounce their citizenship back in to the country.

rprasad7• 14 years ago

Lol. I just realized why people aren't understanding my other comments about why this debate matters. Here's an explanation:

Capital gains on the sale of capital assets (i.e., stock) by foreign persons are not taxable by the U.S. Only certain types of capital investment (i.e., real property or income that is connected to a U.S. business activity) is taxable by the US. See generally Section 871 and its accompanying regulations.

Capital gains by foreign persons are generally taxed by the foreign person's country of residence unless the foreign person has a tax nexus to the U.S. Generally, the tax nexus is provided by citizenship, actual residence, or deemed residence. Id.

Eduardo is not an actual or deemed resident of the U.S., thus his only tax nexus was via his citizenship. By renouncing his citizenship, he severs that last bit of tax nexus.

Consequently, the sale of the Facebook stock is now taxable only by the foreign jursidiction in which he is a citizen/resident. In this case, Singapore does not impose a capital gains tax, so he would effectively not be subject to any tax at all on the sale of his Facebook stock.

This matters because Singapore is one of the few non-tax haven jurisdictions that provides for no capital gain taxation. It's also unusual that he did so around the same time that Facebook began publicly indicating it would move toward an IPO, despite Eduardo having been eligible for Singaporean citizenship for some time before he actually renounced his U.S. citzenship. Note also that Eduardo "resides" in Singapore but spends significant amounts of time outside of the country.

This is why so many people (including myself) think Eduardo renounced his citizenship to avoid paying taxes. It's the circumstances surrounding his renunciation which are suspicious. If he'd chosen to move to Europe, or China, or Hong Kong, or some other place, it wouldn't be an issue. But based on the totality of the circumstances, it looks like tax avoidance was his primary motive.

Hope this helps.

beagle311• 14 years ago

> In this case, Singapore does not impose a capital gains tax, so he would effectively not be subject to any tax at all on the sale of his Facebook stock.

This is blatantly wrong.

The US, since 2008, has an exit tax. For the purposes of US taxation, what happens is that on the day that he loses his US citizenship, US-Eduardo sells all his things to Singapore-Eduardo at fair market price. Thus, he pays capital gain taxes up until that day.

After that day, it is up to the new jurisdiction: Singapore won't tax him for any further gains, most other countries would.

Either way, if facebook goes down between the day he loses citizenship and the day he actually sells, he has lost money.

He's saved some taxes already, but that's a result of a bet. Another way to make the same bet would have been to buy a call option (or sell a put option, or go long a forward or future) on Facebook stock.

Schumer is just looking for votes and publicity. And the media are happy to distort the story to make villains and heros, because they sell more ads that way.

Senator proposes 30% anti-Eduardo-Saverin tax

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