Renouncing citizenship: Did Eduardo Saverin do anything wrong?(economist.com)
economist.com
Renouncing citizenship: Did Eduardo Saverin do anything wrong?
http://www.economist.com/blogs/democracyinamerica/2012/05/renouncing-citizenship?fsrc=scn/tw/te/bl/dideduardosaverindoanythingwrong
69 comments
Ethically, yes. Legally, no.
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.
I would guess a lot of it is envy disguised as patriotism.
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.
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.
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.
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.
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.
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.
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.
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.
Only realized capital gains are taxed. The capital gain is not realized until the stock is sold. So the answer is no, he's not paying "some" taxes now on his fb shares.
He may have sold some stock to private investors but I don't think that's what you meant.
He may have sold some stock to private investors but I don't think that's what you meant.
He's actually paying as if he sold it all at the time his citizenship was revoked. It's the "exit tax" all the stories on this mention.
Thanks for the clarification.
[deleted]
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.
For this opportunity we should give back as much as we can.
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
Giving back != paying taxes
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...
If American infrastructure invented Facebook then American infrastructure would have invented Facebook.
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.
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.
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.
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.
I hate to sound like a populist, but for goodness sake some perspective is necessary.
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...
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...
There's a difference between tax rate and effective tax rate; the high taxes of yore were never really paid by anyone with money.
Prett sure the effective tax rate is declining as well...
The average effective corporate tax rates last year was 12.1%
AFAIK your claim is factually untrue by a very large margin. Care to explain?
The top marginal tax rate averaged about 54% for the 20th century: http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Doc...
It peaked at 94% during WW2, but even absent of any wars, it was significantly higher than it is now (35%).
It was even worse once you work out how much more progressive our tax is now than it used to be. In 1982, you were paying 50% federal tax on all income above $106K (about $200K in today's dollars). Now the top tax rate doesn't even kick in until after $388K.
People today are paying historically low tax rates mostly because of the Republican's cynical attempt to "starve the beast" in order to reduce spending - which I might add is entirely backwards as it gives everyone what they want and no one feels any pain. If they really wanted to reduce spending, they'd force tax raises so everyone felt the consequences of every new government program.
It peaked at 94% during WW2, but even absent of any wars, it was significantly higher than it is now (35%).
It was even worse once you work out how much more progressive our tax is now than it used to be. In 1982, you were paying 50% federal tax on all income above $106K (about $200K in today's dollars). Now the top tax rate doesn't even kick in until after $388K.
People today are paying historically low tax rates mostly because of the Republican's cynical attempt to "starve the beast" in order to reduce spending - which I might add is entirely backwards as it gives everyone what they want and no one feels any pain. If they really wanted to reduce spending, they'd force tax raises so everyone felt the consequences of every new government program.
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?
Is it really that awful to want wealthy people to pay at least as much in taxes as the middle class?
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.
Salary isn't income either, it's risked labor that should be deductible as a business expense.
I have always gotten paid for every hour I've ever worked, but I've lost money on investments. In fact, one of the reasons for a wage is so that your risk is limited. In theory you could get paid purely in stock grants and bear the risk that entails.
Can you explain the bit about already having been taxed at the corporate rates? I've seen others mention that but I never quite got it. Say a person buys $1 million of AAPL at $50, then sells at $500, netting $9 million of capital gains. Where and when were the corporate taxes paid on that $9 million?
If you assume (as many do) there is a relationship between the stock price and the profits of the company, then corporate taxation serves to reduce profits, reducing the stock price. So, instead of rising to $500, it may have risen to $750. The forgone (and invisible) $5 million of appreciation was the loss due to corporate taxation.
(Obviously, the above is too simplistic to actually rely upon, but that's how corporate taxes reduce investor returns, effectively resulting in double taxation in many people's mind, including my own. I still believe that's part of the reason LTCG are and should be taxed at a lower rate than ordinary income.)
(Obviously, the above is too simplistic to actually rely upon, but that's how corporate taxes reduce investor returns, effectively resulting in double taxation in many people's mind, including my own. I still believe that's part of the reason LTCG are and should be taxed at a lower rate than ordinary income.)
Stock prices are also influenced by supply & demand. The situation you describe works for just one company paying no corporation tax, but if every company suddenly has no corporation tax, every company's profits increase, so relative demand should stay the same, leaving prices the same.
Stocks can pay dividends which are a direct result of their profits, and so the corporate tax rate effects the amount of actual money that gets paid out. Stocks that don't pay dividends are an interesting case, that is the investors allow the company to reinvest their earnings for growth with the expectation of future dividends.
I can see how this can work, for a stable domestic company that's not reinvesting its profits, but don't both foreign earnings (which affect the stock price but are not taxed by the US) and profit reinvestment defeat that whole idea?
"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.
Saverin's paying 15%. Sounds like the goal is met.
This is hilariously disingenuous. He's paying 15% on current value and renouncing his citizenship to avoid paying his taxes on its fair market value when the IPO hits.
I'm not by any stretch of the imagination against people making money, but you have an obligation to pay it forward to the society that enabled you to do it. Defending this sort of behavior smacks of the wealth-worshipper disease and there's not a lot worse than that.
I'm not by any stretch of the imagination against people making money, but you have an obligation to pay it forward to the society that enabled you to do it. Defending this sort of behavior smacks of the wealth-worshipper disease and there's not a lot worse than that.
In what way is he not paying back the society that enabled him? He's paying the designated rate, which will be hundreds of millions of dollars, on the present value of the what he's earned.
What would be satisfactory? That he paid based on the ipo price? What the stock is worth at the end of ipo day (likely inflated)? What it's worth a year from now? 5 years? 10 years? What would be fair?
What would be satisfactory? That he paid based on the ipo price? What the stock is worth at the end of ipo day (likely inflated)? What it's worth a year from now? 5 years? 10 years? What would be fair?
What would at least be better would be to pay the designated rate when he sells, rather than paying the designated rate on a severely deflated valuation of the company, but only after being given the opportunity to sell his shares at a much higher price.
If I understand the situation correctly. He is basically going to be allowed to pay capital gains on $X after selling for something like $10X, making his rate more like 1.5%.
If I understand the situation correctly. He is basically going to be allowed to pay capital gains on $X after selling for something like $10X, making his rate more like 1.5%.
Why do you care? really?
Because taxing rich people at or below the rate of middle-class people is part of what allows wealth to become more and more concentrated as time goes by, which has bad consequences for the country in which I live.
Are you really that unaware of how taxes work? Have you never paid taxes before? He's not being taxed at a certain rate because he's rich. The taxes are for capital gains income. If you as a middle class person, or someone on welfare had 100k shares of FB stock, they'd be taxed at the same 15% as if a billionaire had them. If a billionaire went out and earned their income with a job paid at $10m cash a year... then guess what? They're going to pay the same 35-38% rate on that income that you would pay. Its not about the wealth, its about how its made. If you really are concerned about wealth, try to figure out how the system works first before criminalizing those who have
I'm fully aware of how this stuff works. The fact of the matter is that wealthy people are likely to obtain the vast majority of their income from capital gains, and middle class people are likely to obtain the vast majority of their income from labor. Thus, by taxing capital gains less, you wind up taxing the rich less. No, it's not written into law that way, but that's how it works out.
If you want to continue the discussion, do you think you could try to do without the personal attacks? They're very irritating and completely uncalled for here.
If you want to continue the discussion, do you think you could try to do without the personal attacks? They're very irritating and completely uncalled for here.
A rate is not the same thing as a value. 15% of $1B is a hell of a lot more than 15% of $50K.
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.
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.
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.
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.
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.
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.
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.
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.
>> 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.
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.
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.
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.
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.
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).
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.
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).
what happened to "land of the free", as in freedome to decide where you live and your citizenship?
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.
It seems people have missed the article where Eduardo explains why he renounced his citizenship:-
http://news.ycombinator.com/item?id=3972209
http://news.ycombinator.com/item?id=3972209
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).
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"
"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"
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.
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.
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.
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.
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.