De-Friending America May Save Facebook Founder $67 Million
Building on our previous post regarding the decision by Facebook co-founder and current 4% shareholdersEduardo Saverin to renounce his U.S. citizenship in advance of the Facebook IPO comes this news from Bloomberg:
Facebook Inc. (FB) co-founder Eduardo Saverin will save at least $67 million in federal income taxes by dropping U.S. citizenship, according to a Bloomberg analysis of the company’s stock price. Those savings will keep growing if Facebook’s shares increase.
Saverin’s stake may be worth as much as $2.89 billion, based on the company’s 1.898 billion total shares outstanding. His stake was worth about $2.44 billion in September. Bloomberg calculated the $67 million figure by applying the 15 percent U.S. capital gains rate to the approximate $448 million spread between the two values.
The savingsresults from the fact that by renouncing his citizenship,though Saverinmust pay an “exit tax” as if he sold his Facebook shares, the hypothetical gain is determined based on the value of the Facebook shares inSeptember — when Saverin formally renounced his citizenship — rather than at the inflated post-IPO value.As an additonal benefit, by leaving the U.S. in 2012 rather than 2013, Saverinwill pay the exit tax on the hypothetical gains at the current 15% preferential long-term capital gains rates, rather than the 20% rate slated to return on January 1. Better still, Saverin can choose to defer the exit tax until he subsequently sells the Facebook shares, and the gain will still be determined based on the value on the date he left the U.S.; all Saverin will have to pay currently is annual interest of 3.28% on the deferred tax.
Saverin’sspokesman, Tom Goodman, refused to acknowledge that tax savings played a role in Saverin’s decision:
“The calculations and assumptions are not only erroneous, they also further perpetuate the false impression that tax was the reason behind Eduardo’s decision,” Goodman said, declining to cite specific errors. “His motive had nothing to do with tax and everything to do with his desire to live and work in Singapore.”
