So much is going on with Facebook that politicians have joined the call to tax the techies while they are with us ( Make Google pay more tax: Turnbull.)
Firstly the IPO was held (valuation $104 billion), then the news broke that its co-founder Eduardo Saverin had quit his U.S citizenship in September last year to reside in Singapore and finally the news that Mark Zuckerberg has tied the knot (prenup or not).
Here’s the deal with Saverin. He renounced his US citizenship, thereby escaping the automatic US tax residency status. As a result of his renouncing his citizenship, the U.S taxes all of his property on a mark-to-market basis on that day.
Saverin surrendered his U.S passport in September last year and the Facebook IPO was announced in February 2012. Therefore, according to s 877A of the IRC, based on the September 2011 valuation, his holding in Facebook subject to tax would be much lower than the valuation now (after the IPO) or whenever he decides to sell. His timing could not have been more savvy.
And what about rules against anti-avoidance in the U.S? The “economic substance” test (requiring the taxpayer to establish that there was a sound economic reason for the arrangement entered into) that Obama tried to work into a general anti-avoidance rule is embedded in the Healthcare Bill that is wallowing in the Supreme Court and may not see the light of day.
One Senator in the US has even proposed a flat tax of 30% capital gains tax on people such as Severin, unless they proved that they didn’t renounce their US citizenship to avoid taxes, see Schumer proposes tax on people like Facebook’s Saverin.
Eduardo Saverin might not be too keen to leave the US anytime soon. Can you imagine the ‘special attention’ US customs would lavish upon him after learning how much potential tax revenue he took with him to Singapore?
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