CQ TODAY ONLINE NEWS – TECHNOLOGY & COMMUNICATIONS
May 17, 2012 – 2:40 p.m.
Facebook Co-Founder’s Citizenship Change Spurs Senators to Offer Tax Bill
By Ambreen Ali, CQ Staff
Amid the frenzy over Facebook’s initial public offering, two Democratic senators are introducing a bill to prevent one of the social network’s founders from evading federal taxes by renouncing his U.S. citizenship.
Eduardo Saverin, the company’s 30-year-old co-founder, severed ties with Facebook two years after it was launched but maintained his financial holdings. The billionaire could owe between $67 million and $100 million in U.S. taxes after Facebook’s IPO, but he renounced his U.S. citizenship last year and became a citizen of Singapore, where he has lived since 2009.
Although Saverin denies that the move was for tax reasons, Sens.
“That rings hollow. Mr. Saverin says he’s a global citizen, but it just so happens that the country where he has decided to reside, Singapore, has no capital gains tax,” Schumer said. “We aren’t going to let him get away with it.”
The senators plan to introduce legislation Thursday that would require the IRS to assume that individuals who renounce their citizenship and who have a net worth of $2 million — or average annual taxes of at least $148,000 over the past five years — are doing so for tax reasons.
The bill shifts the burden of proof so that every individual meeting that threshold must provide what Schumer described as “a very, very good reason” to the IRS.
The legislation would strengthen enforcement of a provision of a 1996 tax law (PL 104-191) that bars those who renounce citizenship to avoid taxes from ever visiting the United States again. Schumer and Casey’s bill also adds a 30 percent capital gains tax on any U.S. investments those expatriates have in the future.
If Saverin, who was born in Brazil and immigrated to the United States as a teenager, had kept his American citizenship through Facebook’s initial public offering, he would pay only a 15 percent tax on his earnings. By doubling the rate, the senators said they hope to prevent others from bolting as well.
“Citizenship is not for sale,” Schumer said. “The despicable trend that Saverin exhibits must be stopped dead in its tracks.”
Last year, 1,780 people gave up their passports, up from 235 in 2008. The senators said they suspect the increase is due to taxes.
In lieu of a capital gains tax, Saverin paid an exit tax on his stock holdings when he renounced his U.S. citizenship. Schumer said that amount is “considerably less than the value of the tax,” possibly $100 million less. Those who defend Saverin’s actions have disputed that amount, saying that he has paid a sufficient portion of capital gains tax through the exit levy.
Neither senator indicated whether he thought the Republican-controlled House would be open to passing the legislation. Casey said he “would like to hear the reason” why anybody would not support it.
“A lot of other people are struggling,” he said. “They’re trying to make ends meet, and this guy thinks he can just rip us off by engaging in this scheme.”
Facebook Co-Founder’s Citizenship Change Spurs Senators to Offer Tax Bill
They dismissed concerns about whether such a law would be constitutional, saying the legislation is not designed to target Saverin alone.
A spokesman for Facebook declined to comment.