Do you remember all that tax money Facebook Co-Founder Eduardo Saverin was set to save on Facebook’s initial public offering by renouncing his U.S. citizenship and establishing residency in Singapore? Not so fast, said Sens. Charles Schumer (D-N.Y.) and Bob Casey (D-Pa.).
Schumer and Casey held a press conference earlier today to share the details of legislation they are sponsoring, the Ex-Patriot Act, which basically assumes that any expatriate with a net worth of more than $2 million was motivated by the prospect of avoiding tax payments.
If the bill becomes law, it will be backdated for 10 years on the day of its approval, according to TechCrunch.
For his part, Saverin said that his relocation to Singapore was not motivated by taxes, but by investment reasons, with his spokesman, Tom Goodman, telling Bloomberg earlier this week that Brazilian-born Saverin intends to invest in companies from Brazil and other global firms exploring entry into the Asian market, and saying:
Eduardo recently found it more practical to become a resident of Singapore, since he plans to live there for an indefinite period of time. Accordingly, it made the most sense for him to use Singapore as a home base.
Schumer wasn’t buying it, saying in a statement today:
Mr. Saverin has decided to “defriend” the United States of America just to avoid paying his taxes. We aren’t going to let him get away with it so easily. It’s infuriating to see someone sell out the country that welcomed him, kept him safe, educated him, and helped him become a billionaire. This is a great American success story gone horribly wrong. We plan to put a stop to this tax-avoidance scheme. There should be no financial gain from renouncing your country.
Casey added, as reported by Reuters:
Mr. Saverin has benefited greatly from being a citizen of the United States, but he has chosen to cast it aside and leave U.S. taxpayers with the bill. Renouncing citizenship to simply avoid paying your fair share is an insult to middle-class Americans, and we will not accept it.
Here is a summary of the Ex-Patriot Act, via TechCrunch:
“Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy” Act
Sponsored by Senators Charles E. Schumer & Bob Casey
I. Current law (Section 877A of the Internal Revenue Code) already provides that any individual who either has:
(a) A net worth of $2 million or more; OR
(b) An average income tax liability of at least $148,000 over the last five years;
and who renounces their citizenship has to pay an exit tax based on the value all property and assets owned by that individual.
The Ex-Patriot Act provides that when an individual expatriates for a substantial tax purpose — as judged by the Internal Revenue Service — that individual will be subject to a 30 percent capital gains tax on future investment gains. Section 871 of the Internal Revenue Code already taxes non-resident aliens for dividends, interest, and other items at the 30 percent rate. The Ex-Patriot Act adds capital gains to this mix of taxable earnings. The tax will apply to anyone who gave up his citizenship in the last 10 years, but only taxes capital gains earned in the USA following the date of enactment.
II. The Ex-Patriot Act also provides that if the IRS finds that avoidance of taxes was a substantial purpose of expatriation, the individual who renounced citizenship will be barred from any type of re-entry into the United States. This section requires the IRS commissioner to make a decision regarding tax-avoidance intent for every individual subject to Section 877A who renounces citizenship. It is retroactive and will encompass individuals who have renounced citizenship for the 10-year period prior to enactment of the statute.
Readers: Do you think the Ex-Patriot Act is too harsh, or justified, in the case of Saverin?