Singapore-based Saverin, who was born in Brazil and moved to the U.S. as a child, used his life savings of $30,000 to fund Mark Zuckerberg’s plan for a social-networking site. Facebook was valued at $104.2 billion and Saverin’s stake may be worth $2.89 billion.
May 18 (Bloomberg) — Joe Henchman, vice president of legal and state projects at the Tax Foundation, talks about legislation from U.S. Senator Charles Schumer of New York that would impose a 30-percent capital gains tax on people such as Facebook Inc. co-founder Eduardo Saverin unless they show they didn’t renounce their U.S. citizenship to avoid taxes. Henchman speaks with Trish Regan on Bloomberg Television”s “Street Smart.” (Source: Bloomberg)
Eduardo Saverin, co-founder of Facebook, in New York City. Photographer: Jason Kempin/Getty Images for Common Sense Media
Saverin renounced his U.S. citizenship last year, a move that could reduce his tax bill by at least $67 million, according to an analysis by Bloomberg. U.S. Senator Charles Schumerproposed legislation yesterday that would impose a capital gains tax on people who renounce their citizenship unless they prove their reasons don’t include avoiding taxes.
“My decision to expatriate was based solely on my interest in working and living in Singapore, where I have been since 2009,” Saverin said in a statement relayed by e-mail. “I am obligated to and will pay hundreds of millions of dollars in taxes to theUnited States government.”
The meaning of Saverin’s statement was unclear: Under U.S. tax law, he already owed income taxes as a result of dropping his passport. Bloomberg estimated his bill to be about $365 million triggered by the move.
Americans who give up their citizenship owe an exit tax on the estimated capital gains from their stock holdings at the time of the renunciation. Yet by dropping his U.S. citizenship eight months before the company went public, Saverin’s tax advisers could have argued that his stake was worth much less, thus cutting his tax bill.
Saverin owns about 4 percent of the company before the IPO, according to whoownsfacebook.com. That would make his stake worth as much as $2.89 billion today. In September his investment was worth closer to $2.44 billion based on the price of Facebook shares traded that month in private auctions on SharesPost Inc.
“I did not think once about my position related to tax savings,” Saverin said by phone from his home in Singapore. He declined to comment on how much tax he would save. “The whole idea that that was important to me or part of my consideration is not accurate.”
The tax bill triggered by his move can be deferred indefinitely until he sells the shares. A larger benefit is likely from any future appreciation in Facebook stock, since Singapore has no capital gains tax.
Former U.S. citizens can face negative consequences if they acknowledge dropping their passports to avoid federal income taxes, said David S. Miller, a tax attorney at Cadwalader, Wickersham & Taft LLP in New York.
A 1996 law known as the Reed Amendment states that if the Attorney General determines that a U.S. citizen renounced citizenship for the purpose of avoiding tax, the former citizen may be barred from returning to the U.S., according to Miller.
“If Saverin had acknowledged that he had expatriated for tax purposes, he could be barred from ever returning to the United States under current law,” Miller said.
Schumer’s proposal would empower the Internal Revenue Service to impose capital gains tax at a higher rate of 30 percent on future investment gains of wealthy individuals who the agency decides renounced their citizenship to avoid taxes. It also would bar such people from re-entering the U.S. Schumer said he will advance the legislation as quickly as possible.
“Eduardo Saverin wants to de-friend the United States of America just to avoid paying taxes,” Schumer, a New York Democrat, told reporters. “We aren’t going to let him get away with it.”
“It is unfortunate that my personal choice has led to a public debate, based not on the facts, but entirely on speculation and misinformation,” Saverin said in the statement.
Saverin said he relocated to Singapore in 2009 because it’s an easy place to live, people speak English and it’s a travel hub at the heart of rapidly growing Asia. The World Bank ranks Singapore as the easiest place in the world to do business.
Renouncing U.S. citizenship was about “simplicity of focus so that my time and efforts can be spent on what matters to me,” he said, including investing in new early-stage technology startups, like Facebook, that emphasize people.
New U.S. tax rules will complicate banking for Americans overseas. Banks will be required to report income and interest paid to the account holders of U.S. origin to the U.S. Internal Revenue Service. The rules, scheduled to go into effect in 2013, have prompted many banks to turn away business from Americans.
“If I chose to open a bank account locally in Singapore, most of the banks would not accept me in having a fully functional bank account,” he said.
Saverin, who declined to discuss his percentage or its valuation, said he never believed his $30,000 investment would go so far. Facebook shares will begin trading today under the symbol FB on the Nasdaq Stock Market.
“Something I would’ve never imagined was when I put all my life savings into the company, that it would have been an IPO at this level,” Saverin said. “You never imagine that $30,000 accumulated through your life, through gifts and birthday parties and other events, and investing it in the company would create this type of returns.”
Zuckerberg, Prince Alwaleed
Zuckerberg is worth more than $20 billion, giving him a fortune comparable to those of SaudiPrince Alwaleed Bin Talal and Amazon.com Inc. founder Jeff Bezos, according to theBloomberg Billionaires Index. Google Inc. co-founder Sergey Brin is worth about $19.1 billion.
When the opening bell rings on the Nasdaq, Saverin will be celebrating at home with “some very close friends” and speaking on the phone with his parents and two siblings who still live in Miami, he said.
Saverin said he has no plans to speak to Zuckerberg. While the two are not regularly in touch, he admires his co-founder.
“I’m very proud of how he’s been able to keep the focus and push the company to this level,” he said. “It’s incredible what he’s done.”
In Singapore, Saverin has invested in mobile applications developer Anideo Pte, run by his friend Andrew Solimine with whom Saverin said he first traveled to the Asian nation, and in Maiplay Pte, a developer of an application that helps users collect loyalty points on a mobile device. Saverin’s U.S. holdings include shares in Jumio Inc., an online payments company, andShopSavvy Inc., a price-comparison service.
Being an “extremely shy, private” person is also a consideration, Saverin said. Singapore has little paparazzi culture. Private nightclubs such as Mink and Filter, which Saverin occasionally visits, cater to the wealthy in a city that has built itself into a center for private banking.
Singapore is Asia’s largest wealth-management center, with $512 billion in offshore assets in 2010, data compiled by the Boston Consulting Group show.
Saverin fits the image of a billionaire playboy “in no way whatsoever,” he said. “I am 30, and I’m not married. I go out with my friends as a normal person would.”
“We do hang out here and there,” Phillip Poon, co-founder of Mink and Filter, said in an interview. “He’s pretty much like any normal guy, hanging out with his friends. The press seems to mention that he’s partying non-stop, but he’s actively involved in work.”