[quote=AN][quote=flu][quote=John Ogre]The funny thing about facebook is that there’s a good chance that Eduardo Saverin will have to pay more taxes on his stock by renouncing his citizenship than if he stayed.
He has to pay capital gains on all of his stock on the estimated valuation on the day he renounced his citizenship. The IRS should value it at at least half of the IPO. It’s down 25% already.[/quote]
poetic justice.[/quote]
I doubt it’s lower. The Instagram deal now is only $948M instead of $1B. That deal priced FB at $30.43 in April. This guy renounced his citizenship at least 6 months before IPO. So, my guess is, it’s well below $30. Now, if FB drops to $10, then it might be poetic justice.[/quote]
Speak of the devil….
This IPO really went backassward….I think some insiders really got hurt if they traded the shares at $44/share on second market… Ouch….
Facebook’s Saverin: Citizenship Renunciation Increased His Tax Bill
I had thought that this could be true but now it seems that it is. Eduardo Saverin famously renounced his US citizenship last fall. The news broke just a few days before the Facebook IPO and there were immediate cries that he was just a tax dodger, spurning the country that offered him the chance to make such a fortune and so on. There’s even the usual grandstanding from a politician or two about how the law must be changed to punish such behaviour.
Yet, as I noted at the time, it was entirely possible that his giving up his US citizenship could actually increase his tax bill, not reduce it. And Felix Salmon has the proof as to why this was so.
What’s more, I can easily see how the frothy Facebook valuations being seen on SecondMarket contributed to the debacle that was the Facebook IPO. Facebook executives with vested equity had the opportunity to sell their Facebook stock in early 2012 at valuations north of $80 billion; at the peak of Facebook fever, just before the IPO, the shares traded as high as $44 each. Given that Facebook was by far the most liquid stock on SecondMarket, and had weekly auctions from November 2010 onwards, it was pretty reasonable to consider SecondMarket to be a reliable price discovery mechanism.
The important point here is that last fall Facebook was worth more on those private markets than it is now after the IPO. And we do have that reliable price discovery mechanism there, that private market price.
Don’t forget that Saverin, when he renounced his citizenship, had to calculate a tax bill as if he had just sold everything he owned. Yes, this includes selling all of his Facebook stock. At that price of last fall and that price of last fall is higher, significantly higher, than the price now.
So, by leaving the country then Saverin locked in a tax bill at pretty much the peak of Facebook’s valuation. His leaving the country has, so far at least, therefore led to his having a higher tax bill than if he’d just stayed.
The only way his actions will save him any money is if Facebook stock goes above about $40 before he sells. Which is, well, you make up your own mind about how likely that is.
