Various scandalized headlines have mentioned that he’s just one of 1,800 other Americans to give up citizenship last year, up from 235 in 2008, while others have speculated that it’s a cynical move to avoid taxes resulting from a massive capital gain when Facebook shares become publicly traded. Saverin has been savaged in the media and on the social web, but in fact it turns out that this cannot be a tax-saving move. Any ideas as to why Saverin and the other ex-Americans gave up the benefits of Uncle Sam’s protections?
Tom Worstall explains why Saverin will actually owe more taxes in Forbes:
Eduardo Saverin, one of the founders and major shareholders in Facebook, has renounced his US citizenship just before the company’s IPO. However, contrary to many media reports this is not going to reduce his current tax bill: far from it it will increase his current tax bill. It will obviously reduce his future bills, but he has to pay tax as if he liquidates his entire portfolio on the day of his renunciation.
Saverin won’t escape all U.S. taxes. Americans who give up their citizenship owe what is effectively an exit tax on the capital gains from their stock holdings, even if they don’t sell the shares, said Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan’s law school. For tax purposes, the IRS treats the stock as if it has been sold.
The specific rules are laid out here. None of the exemptions will apply to Saverin…
[continues in Forbes]