Facebook co-founder Eduardo Saverin has renounced his U.S. citizenship ahead of the company's IPO, Bloomberg reported -- a move likely calculated to help him dodge capital-gains taxes.Saverin, one of a handful of people who helped Mark Zuckerberg start Facebook at Harvard in 2004, hasn't been active at the company for many years. He still holds an estimated 4 percent of Facebook, however, a stake worth as much as $3.8 billion, Bloomberg calculated.
"Eduardo recently found it more practical to become a resident of Singapore, since he plans to live there for an indefinite period of time," Saverin spokesman Tom Goodman told Bloomberg by e-mail.
Renouncing his U.S. citizenship could shield Saverin from much, though not all, of his U.S. tax liability related to his Facebook holdings. Singapore doesn't have a capital gains tax, though it does tax income earned in the city-state as well as some foreign-source income.
According to Reuven Avi-Yonah, head of the international tax program at the University of Michigan, Americans who give up their citizenship still owe a sort of exit tax on the capital gains from their stock portfolios, whether they've sold shares or not. But estimating the value of shares in a private company such as Facebook is, shall we say, an exercise with lots of room for interpretation.
Avi-Yonah told Bloomberg that renouncing citizenship ahead of an IPO is "a very smart idea" from a tax standpoint, since once a company is public, "you can't fool around with the value."
Saverin gave up his U.S. citizenship "around September," his spokesman told Bloomberg. Facebook formally filed for its initial offering in February. Saverin was born in Brazil, then moved to the U.S. in 1992 and became a citizen in 1998.
By contrast,when Facebook goes public, much of that from the exercise of stock options worth about $5 billion. (The same transaction, however, may yield Facebook itself a tax deduction that could eliminate its 2011 liability and reduce both past and future taxes.)
Saverin tussled with Zuckerberg several years ago over his ownership stake in Facebook, eventually settling the case for an undisclosed amount.