Models and Bottles and Unwise Tax Exile Decisions

The second story behind Facebook’s slightly shambolic IPO (as I type: $34.43 -3.80 -9.94%) has been the not-quite-a-revelation of Eduardo Saverin’s tax-dodging move to Singapore. For those who’ve been hiding under a rock (or on MySpace) for the last week: Saverin gave up his US citizenship in September last year and became a Singaporean citizen, freeing him to party all night at Pangaea, the too-cool-for-school nightclub built on a pontoon in front of Singapore’s Marina Bay Sands casino. 

Despite strongly denying that he relinquished his US citizenship for tax reasons, it’s hard not to attribute tax-avoidance motives to Saverin’s decision. When he left the US behind, in September 2011, he paid an “exit tax” on his FB stake equal to the outstanding capital gains tax on it – probably at the long-term capital gains tax rate, 15% of the stake’s value – but in return, he no longer had to pay CGT on any further gains. 

Understandably, a lot of people were quite angry about this – especially US Senator Chuck Schumer, who threatened to pass an “Ex-PATRIOT Act” (ha ha ha) to bar Saverin from entering the country ever again. He is no longer a popular man in the USA. 

And if Facebook’s stock keeps sliding, he may have made a disastrous financial mistake as well as a disastrous public relations mistake. 

According to the NYT article, Saverin’s renunciation became official in September 2011 – at which time he would have been slugged with CGT based on the current price of his Facebook stake. SecondMarket has an excellent timeline of Facebook’s share price, and it tells us that Facebook’s price in September 2011 was $31.66 a share.  

When Facebook opened at $42 a share, Saverin would’ve felt like a hero – he’s dodged CGT on more than $10 a share of gains. But since then, FB has tanked. 

At the current price, Saverin’s only up about $3 a share from his exit-tax price. If the stock sinks just a little bit further, he’ll end up doubly in the hole – having paid CGT on gains that he hasn’t realised yet (and might never realise!), and incurring the wrath of some fairly powerful American lawmakers. 

So if you find yourself in Singapore late at night, and you see a Brazilian guy sitting at the bar in Pangaea crying into his glass of vintage Krug (I don’t actually know whether Pangaea serves Krug and I’m not planning to find out), you’ll know who it is and you’ll know why. 

Update: Grover Norquist, head of anti-tax group Americans for Tax Reform, thinks the idea of an Ex-PATRIOT Act is straight out of “1930s Germany” and “plagiarised from the original German”, which I guess makes Eduardo Saverin the new Oskar Schindler or something? I think the one thing we can all agree on is that Norquist has a way with tasteless metaphors. 

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2 Responses to Models and Bottles and Unwise Tax Exile Decisions

  1. Martin Barry says:

    You’re presuming that he hasn’t cashed out some of his stake already, either pre-IPO in the secondary markets, in the IPO itself or in the first few days of trading. The coin for those bottles of Krug has to be coming from somewhere… :-)

    His remaining stake may be marginal now but he’s probably still way ahead in the scheme of things.

  2. Lisa says:

    I don’t think it’s actually confirmed that he’s taken up Singapore citizenship. More likely Permanent Resident status as of now.

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