

Senator proposes 30% anti-Eduardo-Saverin tax - hkmurakami
http://www.bloomberg.com/news/2012-05-17/schumer-proposes-tax-on-people-like-facebook-s-severin.html

======
cafard
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.

~~~
eli
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.

~~~
hkmurakami
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.

~~~
eugenejen
No, Your example is wrong factually. It is not George Soros, but his cofounder
in original Quantum Fund, Jim Rogers
<http://en.wikipedia.org/wiki/Jim_Rogers>. We need to do fact checking before
we write down anything.

George Soros is alive and kicking living in Upper East Side, Manhattan;
Bedford, Westchester county; and East Hampton, Suffolk county. If you are
lucky you can bump into him very often in Bloomberg Headquarter. And George
Soros is also a proponent for Buffett Rules.

~~~
hkmurakami
Apologies, I stand corrected.

(I'm actually rather embarrassed to have made this mistake)

------
joelrunyon
_“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.

~~~
rprasad
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._

~~~
mentat
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.

~~~
rprasad
I agree, but the key problem is that the U.S. tax system is structured to
collect taxes after the period to which they relate. This is done to minimize
the compliance burden on taxpayers and to minimize the IRS' burden in ensuring
compliance. The alternative is to collect all taxes as they accrue (like sales
taxes are now), which would significantly increase compliance costs for
taxpayers and the IRS's workload.

The primary argument is that Eduardo owes these taxes because the underlying
income was earned while he was an American citizen/resident. It's not a matter
of what he is doing right now--it's a matter of what he was doing back then.

~~~
beagle3
> The primary argument is that Eduardo owes these taxes because the underlying
> income was earned while he was an American citizen/resident. It's not a
> matter of what he is doing right now--it's a matter of what he was doing
> back then.

Assuming technical compliance with the law, this argument is moot. The law
requires payment of capital gains based on fair market value at the day of
renouncing citizenship.

------
crazygringo
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
_"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.

------
patrickgzill
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!)

------
orbitingpluto
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
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.

~~~
orbitingpluto
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.

------
DanBC
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
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
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.

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

~~~
beagle3
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.

~~~
waterlesscloud
I was making a joke that probably was not as obvious as it could have been.
:-)

~~~
beagle3
your <sarcasm> tags were missing ....

------
sp332
"Tax avoidance"? He doesn't even live here anymore. Remind me again why he's
paying any taxes?

~~~
ahelwer
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.

~~~
jlcx
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?

~~~
sethg
Before Eduardo Savarin was a US citizen, he wasn’t a productive foreigner; he
was a teenager who had been targeted for kidnapping in his native Brazil.
([http://pandodaily.com/2012/05/12/what-eduardo-saverin-
owes-a...](http://pandodaily.com/2012/05/12/what-eduardo-saverin-owes-america-
hint-nearly-everything/)) His father was a wealthy businessman (which is why
Eduardo had been kidnap-worthy), but I don’t know if he was wealthy enough to
qualify for immigration to Singapore.

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

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

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

------
vibrunazo
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?

~~~
hazov
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...](http://www.bloomberg.com/news/2012-05-12/facebook-co-founder-may-
gain-choosing-singapore-over-u-s-.html)

EDIT: added "tax".

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

------
rprasad
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.

~~~
beagle3
> 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.

