Facebook Co-Founder Renounces U.S. Citizenship Prior To IPO

Eduardo Saverin, one of the group of people that helped Mark Zuckerberg start Facebook, has renounced his U.S. citizenship in advance of the company’s multi-billion dollar Initial Public Offering:

Eduardo Saverin, the billionaire co- founder of Facebook Inc. (FB), renounced his U.S. citizenship before an initial public offering that values the social network at as much as $96 billion, a move that may reduce his tax bill.

Facebook plans to raise as much as $11.8 billion through the IPO, the biggest in history for an Internet company. Saverin’s stake is about 4 percent, according to the website Who Owns Facebook. At the high end of the IPO valuation, that would be worth about $3.84 billion. His holdings aren’t listed in Facebook’s regulatory filings.

Saverin, 30, joins a growing number of people giving up U.S. citizenship, a move that can trim their tax liabilities in that country. The Brazilian-born resident of Singapore is one of several people who helped Mark Zuckerberg start Facebook in a Harvard University dorm and stand to reap billions of dollars after the world’s largest social network holds its IPO.

“Eduardo recently found it more practical to become a resident of Singapore since he plans to live there for an indefinite period of time,” said Tom Goodman, a spokesman for Saverin, in an e-mailed statement.

Saverin’s name is on a list of people who chose to renounce citizenship as of April 30, published by the Internal Revenue Service. Saverin made that move “around September” of last year, according to his spokesman.

It may help him cut the tax bill stemming from his Facebook stake, and avoid capital gains taxes on his future investments. Singapore doesn’t have a capital gains tax.

Saverin won’t escape all U.S. taxes. Americans who give up their citizenship owe what is effectively an exit tax on the capital gains from their stock holdings, even if they don’t sell the shares, said Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan’s law school. For tax purposes, the IRS treats the stock as if it has been sold.

Renouncing your citizenship well in advance of an IPO is “a very smart idea,” from a tax standpoint, said Avi-Yonah. “Once it’s public you can’t fool around with the value.”

Saverin’s estimated gain, and subsequent tax bill, would be based on an appraisal by his tax advisors. They could have valued his Facebook stake at less than it will be worth once shares trade publicly, reducing his liability. For tax purposes, Saverin can argue that the value of his stake should be discounted because of the potential difficulty of selling the shares while the company remains private.

So, there is a way to beat Uncle Sam after all.

 

FILED UNDER: Economics and Business, Quick Takes, Taxes
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Chad S says:

    Not really:

    Saverin won’t escape all U.S. taxes. Americans who give up their citizenship owe what is effectively an exit tax on the capital gains from their stock holdings, even if they don’t sell the shares, said Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan’s law school. For tax purposes, the IRS treats the stock as if it has been sold.




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  2. Ben says:

    @Chad S:

    Yes and no. He does have to pay capital gains on it, but only based on what the value of the stock was when he renounced his citizenship, which was before the IPO. What the value of a privately held stock is, is quite a hard thing to figure out objectively. Each side is going to have accountants that say the value is something different, and they’ll battle it out. But the value is certainly less than it would be after the IPO.




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  3. Franklin says:

    Oh, no, Ayn Rand was right!




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  4. Gustopher says:

    I wish the government would deport people who renounce their citizenship, and never, ever let them back in the country for any reason.




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  5. PJ says:

    @Gustopher:

    I wish the government would deport people who renounce their citizenship, and never, ever let them back in the country for any reason.

    As does a lot people in Switzerland.




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  6. Chad S says:

    @Ben: Yes, but Im guessing he’ll have a massive US tax bill to settle in any event.




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  7. @Gustopher:

    I wish the government would deport people who renounce their citizenship, and never, ever let them back in the country for any reason.

    “The Brazilian-born resident of Singapore”

    It’s hard to deport someone who’s already overseas.




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  8. Ben says:

    @Chad S:

    Massive to you and I, yes. But it’ll be a hell of a lot smaller than he’d face if he stayed here.




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  9. Tsar Nicholas says:

    Taxes are a four letter word for the super wealthy. Singapore is becoming a haven for tax exiles. Hell, pretty soon some new-age Jagger/Richards combo will pen “Exiles in Singapore.” Capital gains taxes really do affect the behaviour of investors. If Uncle Sam ever did decide to tax the very rich they’d pull up stakes and head elsewhere. Or at least many of them would.




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  10. al-Ameda says:

    What’s left for Eduardo, purchase the rights to the unmarried Kardashian women?




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  11. jpe says:

    Yes, but Im guessing he’ll have a massive US tax bill to settle in any event.

    At some point, but he can defer the tax until he sells the assets.




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  12. Herb says:

    @Tsar Nicholas:

    “If Uncle Sam ever did decide to tax the very rich they’d pull up stakes and head elsewhere. Or at least many of them would. “

    Probably true about some of the very rich but not sure about the “many.” I think you’d have to be very, very rich –NFL owner rich, not NFL player rich– for “tax exile” to be even remotely attractive. Then to whittle it down even more, you have to be the type of person who doesn’t care about the culture, is comfortable living in a place where you don’t speak the language, can insulate yourself in the wealthiest neighborhoods, etc.

    As wealthy as they are, I can see neither Warren Buffet nor the Koch brothers pulling up stakes and finding some tax haven. I don’t even think Mark Zuckerberg would do it, and he has a bigger stake in Facebook than Saverin. These guys still have work to do.

    Sounds like Saverin basically retired to Singapore and now wants the senior discount.




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  13. Jenos Idanian says:

    @Gustopher: I wish the government would deport people who renounce their citizenship, and never, ever let them back in the country for any reason.

    Jingoistic xenophobe…




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  14. Loviatar says:

    What Eduardo Saverin owes America. (Hint: Nearly everything.)

    Yet if you study the trajectory of Saverin’s life—the path that took him from being an immigrant kid to a Harvard student to an instant billionaire to the subject of an Oscar-winning motion picture—it emerges as a uniquely American story. At just about every step between his landing in Miami and his becoming a co-founder of Facebook, you find American institutions and inventions playing a significant part in his success.

    Now comes news that Saverin has decided to renounce his U.S. citizenship, most likely to avoid a large long-term tax bill on his winnings in the Facebook IPO. Saverin owns about 4 percent of Facebook stock.

    Is this fair? No. It’s worse than that, though. It’s ungrateful and it’s indecent. Saverin’s decision to decamp the U.S. suggests he’s got no idea how much America has helped him out.

    As an immigrant myself, I’ve got no patience for the argument that he should keep all of it. Pretty much everything in my life that I enjoy wouldn’t have happened without my being in the United States. My education, my job, my wife and family, the fact that I’m not persecuted for my race or religion (I was born in South Africa), the fact that I can sometimes forget to lock my doors at night and not end up killed by marauding bands—I hate paying taxes as much as the next guy, but when I think about all the ways that the United States has been integral to everything in my life, taxes seem like a tiny price.

    Now, remember that the tax rate on long-term capital gains is only 15 percent. In other words, Saverin gets to keep 85 percent of everything he’s making from Facebook’s IPO. Given how much of his wealth depends on the government, that’s more than fair.




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  15. sam says:

    @Gustopher:

    Word.

    @Jenos Idanian:

    Jingoistic…

    Where was he calling for a war?




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