Two senators want to stop Facebook’s Saverin from dodging taxes
WASHINGTON — Eduardo Saverin fled Brazil as a boy and lived the American dream by helping found Facebook Inc.
Now two U.S. senators want to make sure he never sets foot in the U.S. again unless he pays tens of millions of dollars in taxes he will owe after the company’s initial public offering Friday.
Saverin renounced his U.S. citizenship this year and is living in Singapore, a country with no capital gains tax. Sens. Charles E. Schumer (D-N.Y.) and Bob Casey (D-Pa.) denounced him Thursday as a tax dodger and introduced legislation to punish anyone who gives up citizenship to duck big tax bills.
“This is a great American success story gone wrong,” Schumer said. “Mr. Saverin wants to de-friend the United States just to avoid paying taxes, and we’re not going to let him get away with it.”
Saverin, 30, who helped found Facebook with Mark Zuckerberg when they attended Harvard University, has a 4% stake in the company, according to the “Who Owns Facebook?” website. The stake could be worth about $4 billion after the IPO.
Schumer said Saverin could save $67 million to $100 million in U.S. taxes on those shares because he renounced his citizenship.
Saverin said he didn’t renounce his citizenship to evade taxes, but he has become part of a more than sevenfold increase in the number of people who have renounced their U.S. citizenship in the last four years.
Schumer and Casey’s bill is called the Expatriation Prevention by Abolishing the Tax-Related Incentives for Offshore Tenancy Act, a name designed to produce the acronym Ex-PATRIOT Act.
Anyone who renounces U.S. citizenship and has a net worth of at least $2 million or an average income-tax liability of at least $148,000 over the previous five years would be presumed by the Internal Revenue Service to have done so to avoid paying taxes.
People who could not prove another reason for renouncing citizenship would face a 30% tax on future capital gains on U.S. investments — twice the current 15% rate — and be barred from receiving a visa to enter the country.
“Under current law, Mr. Saverin would get away for free. But Sen. Casey and I have a status upgrade for him — Pay your taxes in full or don’t ever try to visit the U.S. again,” Schumer said. “The despicable trend that Saverin exhibits must be stopped dead in its tracks.”
News of Saverin’s decision to renounce his U.S. citizenship has led to widespread criticism.
“This [ticks] me off,” entrepreneur Mark Cuban Tweeted recently. “If I could realistically stop using Facebook, this would be the reason I would. Just wrong.”
Saverin said Thursday that he has been living in Singapore since 2009 and did not renounce his U.S. citizenship to avoid paying taxes.
“I have paid and will continue to pay any taxes due on everything I earned while a U.S. citizen,” he said. “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 he was grateful to the U.S. and would end up paying hundreds of millions of dollars in taxes as required under current law. People who renounce their citizenship must pay a one-time expatriation tax based on the value of all their assets.
But Schumer and Casey said they believed that Saverin renounced his citizenship to save millions in capital gains taxes from future sales of his Facebook stock. They said his move was even more galling because Saverin came to the U.S. as a boy when his family feared kidnappers in his native Brazil.
“He spits in the eye of the American people when he does this,” Casey said. “It’s an insult, and he should be held accountable.”
A 1996 law allows the Justice Department to bar anyone from reentering the country who renounced U.S. citizenship to avoid paying taxes. Last year, 1,780 people renounced their U.S. citizenship, up from 235 in 2008, Schumer said. But nobody has ever been barred from reentry for tax avoidance, he said. There is no mechanism for the Justice Department to determine that tax avoidance was the reason for renouncing citizenship, Schumer said.
The Ex-PATRIOT Act would close the loophole by giving the IRS the authority to make that determination.
More people have been renouncing their citizenship in the last few years because asset prices dropped dramatically in 2008, reducing the expatriation tax, said David Hryck, the U.S. head of international tax at London-based SNR Denton law firm.
The possibility of tax increases because of the expiration of theGeorge W. Bush-era tax cuts also has led many U.S. citizens already living abroad to turn in their passports to avoid paying taxes back to Washington, he said.
The U.S. is one of the few countries that makes citizens living abroad pay taxes. Those taxes are a factor in people renouncing U.S. citizenship, but usually not the main reason, Hryck said. Often people simply decide they want to live the rest of their lives elsewhere.
“It may deter some folks from expatriating, but it also may deter the amount of assets or investments that are kept in the U.S.,” Hryck said of the proposed law.
Schumer said he was not trying to punish entrepreneurs.
“I am proud of all the people who made a fortune in Facebook. That’s the American way,” Schumer said. “None of them are renouncing their citizenship to avoid taxes.”