Facebook co-founder Eduardo Saverin’s renunciation of his American citizenship prior to Facebook’s long-anticipated IPO has sparked speculation that the entrepreneur is looking to escape the expensive U.S. tax code.
Bloomberg reported on Friday that Saverin — famously known as the Harvard schoolmate of Facebook founder and CEO Mark Zuckerberg — chose to renounce his citizenship in September 2011. Saverin’s renunciation of his citizenship was published by the IRS on April 30, 2012 in the Federal Register.
Saverin, already a billionaire, currently resides in Singapore, where there is no capital gains tax. According to Saverin’s spokesman, the tech investor plans to invest his money in Brazilian and other global companies “that have strong interest in entering the Asian markets,” Bloomberg reported.
While avoiding a capital gains tax, Saverin would still be subject to an exit tax by the IRS, which would tax his earnings on capital gains made by his stock holdings.
“The manner in which this fellow has dropped his citizenship may not provide the best optics, but there is a serious problem at hand,” National Taxpayers Union communications manager Doug Kellogg told The Daily Caller.
Kellogg told TheDC that the complexity of the tax code “only gets more Byzantine,” and that it “truly represents a civil liberties crisis.”
Saverin’s exit from the U.S. is part of a larger trend of increasing expatriation. More and more people who earn income from foreign activities are choosing to turn in their passports. Hit with double taxation by both the country they reside in and the U.S., compliance with the complexities of the U.S. tax code increases their financial burden and disadvantages them while they live abroad.
“Just this year we saw a record number of U.S. citizens abroad renounce their citizenship. It is the specter of the IRS that scares these folks off: Even if you live and work abroad, as a U.S. citizen you face a variety of tax liabilities that are unique in the world, including paying income tax in two countries,” Kellogg said.
The 2011 annual report to Congress by National Taxpayer Advocate Nina E. Olson — published on December 31, 2011 — stated that, ”Renunciations increased more than ten-fold from 146 in Fy 2008 to 1,534 in Fy 2010, with 1,024 renunciations in the first two quarters of Fy 2011 alone.”
Bloomberg reported the 2008 number higher, at 235, and that 1,780 people gave up their citizenship in 2011. Olson wrote in her report that the main reason for the renunciations was the continual increase in the complexity of the tax code.
“The tax code is nearly 4 billion words long now — imagine worrying about complying with that and another country’s tax laws,” Kellog said. “The penalties are also huge — it puts undue stress on these taxpayers and they can’t take it at a certain point.”