Posted on 05/28/2012 12:11:45 PM PDT by SeekAndFind
Eduardo Saverin, the co-founder of the social network and Facebook Inc., stands accused of violating the social contract -- the idea that government is based on an agreement among its citizens to ensure mutual protection of person and property.
His decision to give up his American citizenship before the Facebook initial public offering drew criticism for his perceived breach of financial and patriotic duties, including the duty to pay income taxes.
He is even the target of legislation called the Ex-Patriot Act, proposed by Democratic Senators Charles Schumer and Bob Casey, that would ban wealthy expatriates such as Saverin from ever re-entering the U.S. This is seen as a more stringent version of current law, known as the Reed Amendment, which permits the denial of re-entry to tax-motivated expatriates, but does not require it. The Ex-Patriot Act would also tax an ex- citizen’s capital gains at 30 percent for 10 years.
The proposal and the hubbub around the Saverin case are based on two misconceptions about the tax consequences of surrendering a passport and an individual’s motivations for giving up citizenship.
We do not fault Schumer, Casey and others for misunderstanding the mechanics of U.S. taxes on people who leave. These details are tucked away in a few pages that only a handful of lawyers are aware of in an increasingly complex tax code.
The critical confusion is that Saverin, and others like him, somehow avoid U.S. capital-gains tax by moving to another country -- often a no- or low-tax jurisdiction -- and then selling property after they give up their citizenship. In fact, the act of expatriation itself constitutes a deemed sale: an immediate income tax (known as the exit tax) is imposed on all of the individual’s property.
(Excerpt) Read more at washingtonpost.com ...
The government taxes the gains that accrued while the person was a U.S. citizen. It is only the gains accumulated after expatriation that escape taxation. In other words, the Treasury gets its fair share of the tax before the person surrenders his passport.
In Saverin’s case, the difference between his initial investment in Facebook and the fair-market value of the stock upon his expatriation -- less an exemption -- is subject to the U.S. income tax. The simple act of giving up his U.S. citizenship caused the capital-gains tax to be due and payable immediately. The government will collect significant sums as a result.
Saverin won’t be subject to U.S. income tax on any appreciation between the time of his expatriation and the actual sale of his stock. When Saverin surrendered his citizenship, there was a strong likelihood -- but no guarantee -- that his actions would allow him to avoid taxes on such gains.
I wouldn’t call him a traitor but I certainly would not call him a hero. In a dangerous world, law and order bankrolled by hard working American taxpayers gave him a chance to make a fortune.
Buried down in the article is a reference to FATCA. Do some research on this piece of legislation and it will help understand at least part of his motivation. FATCA effectively cuts off many foreign investment opportunities through investment firms that decline to register in the US or otherwise meet FATCA provisions. I guess the idea was to get investors to invest in GM, AIG, Citibank, etc. More experienced (and wealthy) investors may find giving up American citizenship will give them more opportunities and Singapore is the nexus of much of the new world investments. I believe this may be part of Saverin’s thinking and when he makes the statement that his move is not due to taxes, I think that confirms other reasons.
“Eduardo Saverin, the co-founder of the social network and Facebook Inc., stands accused of violating the social contract — the idea that government is based on an agreement among its citizens to ensure mutual protection of person and property”
The WaPo makes the utility case for citizenship and on Memorial Day denigrates the full meaning of that word. But if we want to descend to just utilitarian considerations, then the high direct and indirect costs of ObamaCare should also be mentioned as a factor pushing many citizens to consider expatriating.
Was I wrong in thinking that during the big push for getting ObamaCare passed that we were sternly told that many countries with socialized medicine had far lower costs, but as we read the bill that was passed (Per instructions from Ms. Pelosi), we discovered how high costs might grow to be.
So, it is entirely understandable why people want to expatriate, so they can buy health care for far less than it is supposed to cost here in the US.
There are many countries
” The Ex-Patriot Act would also tax an ex- citizen’s capital gains at 30 percent for 10 years. “
Good way to cause more capital flight from the USA right away!
” More experienced (and wealthy) investors may find giving up American citizenship will give them more opportunities and Singapore is the nexus of much of the new world investments”
Correct.
The founding fathers severed ties with England for roughly the same reasons, e.g. to escape His Majesty’s tax collectors.
RE: ” The Ex-Patriot Act would also tax an ex- citizen’s capital gains at 30 percent for 10 years. “
Peter Schiff, in a lecture given a few weeks ago, spoke about a Canadian woman was was born in the USA to Canadian parents 35 years ago ( which makes her American whether she likes it or not ), who NEVER LIVED in the USA and thus NEVER FILED taxes here ( Her domicile is in Canada ).
Recently, she decided to invest in a few condos in the Northeast to take advantage of the strong Loonie and the drop in our real estate prices... guess what? The IRS went after her because as an American, SHE FAILED TO FILE TAXES IN AMERICA HER WHOLE WORKING LIFE !!
In other words, America has a claim to the money she made IN CANADA by virtue of her being an American citizen whether she wants it or not.
How is America still the land of the free again?
RE: The founding fathers severed ties with England for roughly the same reasons, e.g. to escape His Majesty’s tax collectors.
One huge difference — THEY HAD TO FIGHT to do that.
Saverin had it relatively easy today compared to what men like Washington experienced ( not that Chuck Schumer (who thinks like our old Brit oppressors ) wants things to be easy for him).
Kudos for your absolutely flawless logic, sir: Government as protection racket.
I would imagine that this individual is spiritually a Cosmopolitan and that narrow nationalism never enters his mind.
That is truly sick!!
There have been many stories like this where the IRS goes after people who were born in the US but never lived or worked there.
I currently live overseas and if I ever decide to start my own company I’m going to make my wife the owner of it because she’s not a US citizen and not subject to US taxes. I would just be an employee.
Oh yes, please. Let’s do everything we can to discourage rich people from ever re-investing their money in America!!!
It is amazing how often our Congress Critters go out of their way to exhibit how utterly whacked out they are.
I *DESPISE* the term “Social Contract.” It is an imaginary construct created by socialists and communists.
The contract between the People and the Government in the USA is the Unites States Constitution.
There is nothing implicit in it (as opposed to the imaginary “social contract” idea). It establishes a solid framework. And it does not ever use the word “social contract.” In fact, I don’t think it even uses the term “social” anywhere.
It basically says that the individual cedes certain rights to the society in return for law, order, civility and stability.
>>It basically says that the individual cedes certain rights to the society in return for law, order, civility and stability.<<
Well and good. But, as I said, it has been instantiated by the USC. The nature of the “Social Contract” has been stated and the rights ceded and powers enshrined are spelled out: and the IX and X Amendments should have been compelling (and will be again one day I hope).
The left just uses it the term as a battering ram to justify any and all of their desires (all of which really end up being the desire for power).
Actually, his family brought a lot of money to the USA - they were rich before they got here. He, and people like him, are just as much "hard working ... taxpayers" as anybody else, and I don't think it is appropriate to suggest that successful entrepreneurs owe something, beyond paying the taxes required by law, to the government. Suggesting that somehow Mr. Saverin owes more because he and his colleagues made a hugely successful business by their own efforts sounds like one of Elizabeth (Fauxchonhontas) Warren's ideas.
Saverin probably paid more in income taxes as a student at Harvard than many American citizens will pay in their entire lives. And 15% of his present multi-billion dollar Facebook portfolio could be a payment to the government of over $100 million dollars. He should be getting a personal thank you note from the Secretary of the Treasury, not scorn from politicians who have lived off the taxpayers for their entire careers.
From Wikipedia:
Saverin attended Gulliver Preparatory School in Miami, and went on to Harvard University, where he was a member of the Phoenix S.K. Club as well as president of the Harvard Investment Association. While an undergraduate at Harvard, Saverin took advantage of Brazil's lax insider trading regulations and made $300,000 via strategic investments in the oil industry.
RE: While an undergraduate at Harvard, Saverin took advantage of Brazil’s lax insider trading regulations and made $300,000 via strategic investments in the oil industry.
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So, is that a crime either in Brazil or the USA?
Apparently neither. Not every nation has the same laws regarding their stock markets as the USA does.
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