Facebook Co-Founder Gives Up U.S. Citizenship — Is He Ungrateful, or Heroic?

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Last Friday, we learned that Eduardo Saverin, one of the co-founders of Facebook, had renounced his American citizenship in what seemed to be a transparent ploy to escape a hefty bill from the IRS in the wake of Facebook’s upcoming IPO, widely expected to make a lot of well-connected people a crazy amount of money.

Naturally, the news rubbed a lot of those outside that particular “social network” the wrong way. Internet message boards bristled with denunciations of Saverin’s “treachery” and promises to renounce Facebook. “Way to defriend America, [expletive deleted],” one annoyed American taxpayer tweeted. Another Twitterer, who happened to be outspoken rich guy Marc Cuban, told his followers that “if i could realistically stop using facebook, … I would. Just wrong.”

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The story behind Saverin’s move is a little more complicated than the headlines suggest. The Brazilian-born, Singapore-based investor with the cherub face was one of Mark Zuckerberg’s original backers during Facebook’s Harvard days; while no longer involved in the company as an executive, he retains a 4% stake, which could be worth as much as $4 billion after Facebook goes public.

There’s no question that by giving up his American citizenship and settling down in Singapore, an investor-friendly tax haven with no capital gains taxes, he’ll spare himself a hefty bill from Uncle Sam. He’s not going to escape the IRS entirely, though; the US charges citizenship-renouncers an “exit tax” which could add up to as much as $150 million in his case, one tax expert contacted by the Los Angeles Times estimates.

Saverin maintains that his renunciation of American citizenship, which actually took place last September, wasn’t a ploy to skip out on American taxes, but rather an attempt to free himself from burdensome restrictions on American investors abroad. “U.S. citizens are severely restricted as to what they can invest in and where they can maintain accounts,” the Wall Street Journal quotes a spokesman for Saverin saying. “Many foreign funds and banks won’t accept Americans. This was a financial rather than a tax motive.”

As WSJ’s John D. McKinnon goes on to note:

It’s true many U.S. expats complain that American rules are making life more difficult for them. Those include the U.S. tax system’s global reach (many countries tax based on residency); foreign bank account reporting rules; and the Foreign Account Tax Compliance Act (FATCA), which requires foreign financial institutions to start reporting to the IRS on U.S. citizens’ accounts.

Expats say as a result of all the regulations, some foreign banks are dumping more U.S. customers.

Saverin is hardly the only one taking this particular route to big tax savings. The number of those renouncing US citizenship has soared eight times since the early aughties. As Derek Thompson of The Atlantic points out, nearly 1,800 others joined Saverin in “defriending” the United States last year.

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While some see Saverin’s move as an act of profound ungratefulness to the country that took him in back in 1992, others are defending him as a patriot of sorts for sticking it to the tax man. On Forbes.com, John Tamny hails the Brazilian-turned-American-turned-Singaporean as something of “an American hero for doing what he did.” As Tamny figures it,

Saverin’s essential maneuver will …  hopefully get Americans thinking once again about our wrongheaded system of taxation. …  When individuals resist governmental hubris, we should exalt their actions. …

Assuming nosebleed rates of taxation were a driver of Saverin’s decision, politicians will hopefully see that if too greedy about collecting the money of others, they’ll eventually collect nothing.

And if you believe that, I’ve got a barely used Ayn Rand novel to sell you.

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