Saturday, May 19, 2012

In Defense of Eduardo Saverin

On this blog and on twitter, I think I have a history of taking less-popular viewpoints (including taking less-than-fawning views on Warren Buffett recently and on junior gold miners in 2010- even while long at the time; these articles happen to be the number 1 and 2 most-read posts), so I will take the Eduardo Saverin controversy for a spin as well. If you've been living under a rock, Mr. Saverin, the Brazilian-born Facebook co-founder, renounced his US citizenship recently, provoking much wrath all over the media and with certain Senators.

Here is where my perspective comes from: I am an Eastern European immigrant in the US (not a citizen). I caught the tail end of the Communist dictatorship so I do appreciate the importance of personal freedom in its many forms (association, economic activity, speech, property ownership, taxation, etc.) My great-grand parents were war refugees who fled their ancestral village literally with nothing but the shirts on their backs just because they were of the wrong nationality in the wrong country. The grandparents on the other side were internal labor migrants who spent years building a small home just to see it confiscated by the city government to make way for the gray concrete apartment blocks that E Eur is known for. My parents' entire lives were basically stolen by communism and its aftermath. So I do tend notice the creeping erosion of freedom in the US (from the Coke/Pepsi system to the TSA to lightbulb bans to self-censorship to bake sale bans to indefinite detention to warrantless searches to hairbraider licensing requirements to closures of kids lemonade stands to extrajudicial killing of citizens). Back to Saverin and why he is not an ungrateful uber-rich stateless parasite, with the caveat that nothing discussed here is advice as I am not an expert.

(1) It would be fair to say that we, as a society, abhor critical attitudes towards things people did not choose: race, height, etc. Based on various articles, Mr. Saverin was born in Brazil in 1983 and was naturalized in 1998. He was not older than 15 at the time- not of legal age- so his parents probably had him do it. The story would have a very different feel if Mr. Saverin got a passport at 35 and wanted to give it up at 40 after getting rich. The important point is that Mr. Saverin, just like most US citizens, really did not choose to be one.

(2) Along those lines, US born citizens who choose to move abroad later in life and renounce their citizenship by choice, are largely treated like tax cheats and have to pay unrealized capital gains even on current holdings, and possibly more into the future (after the renouncement is effective). This is the dreaded "exit tax", not unlike the property confiscations of people trying to emigrate (or flee) from oppressive regimes.

(3) The mainstream media is implying strongly that the purpose of Mr. Saverin's giving up his citizenship is tax avoidance. This may or may not be true, but this is not any different really than Turbotax running various tax deduction scenarios on your own return (itemized vs. standard being ubiquitous). As a matter of fact, there is a Supreme Court decision that expressly permits legal tax minimization.

(4) From a practical standpoint, it is increasingly difficult to lead a normal life as a US expat. Due to onerous US regulations, it is not unusual for US citizens to be refused bank or credit card accounts as foreign institutions do not find it practical to meet US reporting requirements. Having a US passport also makes you unwelcome- even a target- in a good number of countries by now. Being "neutral" is much safer.

(5) The US is the only OECD country that taxes citizens (including corporations) on worldwide income. As Mr. Saverin's residence and affairs are by and large non-US, it does make perfect sense for him not to be a US citizen.

(6) If you disagree with Mr. Saverin's perfectly legal, and in my view, logical, step, you can do one very simple thing: cancel your FB profile. Just like your having a linkedin profile makes money for Reid Hoffman and having an iPhone makes money for Steve Jobs's estate, everything you upload and read on FB makes money for Saverin.

(7) Mr. Saverin's renouncement should have been an introspective moment for the US as a nation of liberties and the US tax code. Instead, it was simply a part of Facebook's IPO freakshow and the opulent douchebaggery narrative that accompanies the company. Think about it, if smart, highly successful people do not want to be a part of your country (putting the US in with Russia, China or the RSA), should you look in the mirror first? Could Saverin be the canary in the coal mine?

Disclosure: I have no position in FB or in US citizenship futures and I do not know Mr. Saverin.

PS: the freedom to leave one's country at one's own volition without impediments is so basic that even the UN gets it. Here a bit from Daily Reckoning:

Should the French impose an exit tax on these “ex-patriots”? Should it then bar them from visiting France?
Of course not.
In England in 1215, the right to travel was enshrined in Article 42 of the Magna Carta:
It shall be lawful to any person, for the future, to go out of our kingdom, and to return, safely and securely, by land or by water, saving his allegiance to us, unless it be in time of war, for some short space, for the common good of the kingdom: excepting prisoners and outlaws, according to the laws of the land, and of the people of the nation at war against us, and Merchants who shall be treated as it is said above.
Here’s the United Nations Universal Declaration of Human Rights. Article 13:
(1) Everyone has the right to freedom of movement and residence within the borders of each State.
(2) Everyone has the right to leave any country, including his own, and to return to his country.
Article 12 of the International Covenant on Civil and Political Rights incorporates this right into treaty law:
(1) Everyone lawfully within the territory of a State shall, within that territory, have the right to liberty of movement and freedom to choose his residence.
(2) Everyone shall be free to leave any country, including his own.
(3) The above-mentioned rights shall not be subject to any restrictions except those provided by law, are necessary to protect national security, public order (ordre public), public health or morals or the rights and freedoms of others, and are consistent with the other rights recognized in the present Covenant.
People should be able to move where they want, no? They should be able to look for lower tax places to live, shouldn’t they? After all, we’re Americans, aren’t we? Aren’t we all descendants of people who tried to improve their lives by moving to a new place?
Apparently, a lot of Americans don’t think so. Facebook is going public. And one of Facebook’s founders has moved to Singapore. He will save, by one estimate, $67 million in taxes by giving up his US citizenship. He says that’s not the reason he gave it up. But you can believe what you want.
And now the politicos are up in arms. Mr. Saverin has helped to give them an asset worth about $100 billion. Are they grateful? Do they bend down and kiss his derriere?
No! They want to tax him even more heavily…and prevent him from ever setting foot in the US again.
Yes, dear reader, there is no thought so dumb…so short-sighted…so low…that it won’t become the law of the land. Bloomberg reports:
Chuck Schumer, D-N.Y., has a status update for Facebook co-founder Eduardo Saverin: Stop attempting to dodge your taxes by renouncing your US citizenship or never come to back to the US again.

1 comment: said...

Excellent post. It is extremely annoying all of the abuse Saverin has been subject to, Let's be clear. He is NOT avoiding taxes altogether, he will still pay taxes on any shares he sells now. Second, the US is the ONLY major country to tax its citizens on all worldwide income. No other country I am aware of will tax its citizens if they move to another country. Then you take into account all of the ridiculous reporting requirements, and the rationale for expatriating makes a lot of sense.
alternative investments