I’ve been in contact with a columnist who asked me what I thought about Eduardo Saverin’s expatriation. I respond as follows:
Eduardo Saverin has exercised his unalienable right to renounce his US citizenship. This right is enshrined in the Declaration of Independence of the United States, the Ninth Amendment of the United States Constitution, the Expatriation Act of 1868, the Freedom of Emigration in East-West Trade, and the Universal Declaration of Human Rights, which for its part declares (Article 15, 2):
No one shall be arbitrarily deprived of his nationality nor denied the right to change his nationality.
Yet for exercising a fundamental right, some in the media have vilified Eduardo Saverin. I suppose because he is rich, and the rich today, because of class warfare, are open targets of abuse and defamation. But I understand why Saverin expatriated. I am not rich, but I sympathize, nay I identify with his desire to shed US citizenship. I have done it too.
Saverin remains a citizen of his native Brazil. Brazil doesn’t tax Saverin’s world-wide income; yet the United States was doing that, even though he now lives in Singapore. Did you notice whether he also renounced his Brazilian citizenship? Not a chance. But with US citizenship comes (1) onerous tax filing requirements; (2) invasive bank account reports; (3) the possibility of being locked out of business deals because foreigners don’t want to be partners with an American on account of invasive filing requirements; (4) inheritance tax claims by the IRS when you die and a foreign spouse may have to deal with this unjustly (I think of my own wife). The only benefit of citizenship to an expat is the right to move back to the United States whenever you want. But if you omit doing your filings, then you feel like a fugitive anyway. I will worry about this until the IRS finally decides that my filings are adequate. It is a chilling feeling that a tax bureaucracy has the final say on whether I am welcome or not in the United States. A guy like Saverin can afford the tax professionals–most of us can’t–for an increasingly complicated and oppressive set of rules for those who live outside the borders of the United States. But why bother to continue doing these filings if you don’t really plan to live in the United States again?
Another question we should ask is, “Why did Saverin move to Singapore?” Perhaps it is because the United States expects the rich to pay all the taxes. According to a 2010 chart, the top 1% of taxpayers in the United States paid 40.4% of all income taxes. I wrote about this, comparing it to the tax burden in Canada. The problem is that the 1% pay a disproportionate amount of the taxes while the top 50% of wage earners pay only 3% of the taxes. Most Americans pay no federal taxes at all. Jim Rogers also lives in Singapore and speaks frequently to the US media with his Southern US accent. Why do billionaires live in Singapore? Perhaps it’s because billionaires are welcome in Singapore. They sure are welcome in the United States too, provided they pay 40% of the total tax burden.
So Saverin moved to Singapore and the United States pursues him there too. He’s got to be thinking that his country of birth, Brazil, didn’t do this to him, why should an adopted country place such burdens on him? And for what? The right to move back to the US? That’s a lot to pay when the United States is just one country and not even the best if you are an investor or entrepreneur.
America didn’t make this man rich. He came from a wealthy Brazilian family. He didn’t need the United States. The United States needed him. He was the one who made Mark Zuckerberg rich with his investment to set up the original servers for Facebook. Americans like foreign capital. That’s why there is zero capital gains on foreign investment in the United States. The tax code is set up such that foreign investors will invest, make their money, and pay no capital gains. Increase the capital gains on foreign investors, get less of their investment. See the conundrum?
The question of why Saverin renounced his US citizenship is easy to answer. The response of his spokesman, Tom Goodman, should be accepted as the truth. I certainly do:
“Eduardo recently found it more practical to become a resident of Singapore since he plans to live there for an indefinite period of time,” Goodman said. Saverin still does hold Brazilian citizenship, Goodman said.
This is also the reason that I relinquished my citizenship: it is more practical to be resident of Canada without US citizenship. I plan to live here for an indefinite period of time.
I became a US citizen at birth. I had no choice in the matter. My question is why Saverin became a US citizen in the first place. Many wealthy investors are asking now whether they should become a citizen or Green Card holder and are responding, “No thank-you.” The tax consequences of such an act has now made becoming an American citizen unattractive. And the media rhetoric doesn’t help either. Now that the press has decided to excoriate Saverin with the 1% rhetoric, the US can start kissing foreign investors good-bye forever. An example the media’s response is the LA times piece by Yale law professor Bruce Ackermann. Ackermann wants to turn the United States into the worst place in the world to be an ex-citizen–placing a permanent ban on those who relinquish their citizenship; it is a vindictive, populous article, that doesn’t even take into consideration the ramifications of what it says. It is the same sort of attitude that caused Britain to fight against the colonists who declared their independence–i.e., such measures would be tyrannical, and it is chilling that a law professor, who is supposed to be a smart guy, would write such a piece of demagoguery, and thus wish to curtail the right to expatriate.
Ackermann’s proposal is a direct contradiction of the Expatriation Act of 1868 which recognizes the right of expatriation as a fundamental principle of the United States government, insisting that naturalized citizens be treated as native-born citizens. To be sure, this is a rebuke of nations that mistreated naturalized Americans, but now Ackermann wants to abuse those who become naturalized citizens of other countries. Thus, according to US law and international law, the United States must be consistent towards Saverin and all other emigrants, treating them as all other native-born citizens of their respective countries. To do otherwise is to abridge “a natural and inherent right of all people, indispensable to the enjoyment of the rights of life, liberty, and the pursuit of happiness.”
I saw a reader comment accusing Saverin of being like the rats leaving a ship. The analogy is perfectly suited to explain the corrupt, fiscally unsound ship of the American economy which is sinking into a deep abyss. But it is unjust towards Saverin. He is no rat. He has exercised a fundamental right. He is a citizen of Brazil. And he is now what Obama once claimed to be, a citizen of the world. He has only shed his citizenship of the United States because it is an excessive and unreasonable burden upon his freedom as a citizen of the world.
I believe that the American media would do well to take the high road, and instead of rebuking Saverin, they should wish him well and explain to him that if he ever wants to come back again and create another multi-billion dollar company, that he would be more than welcome to do so. Important investors around the world are watching to see how Americans react. Don’t screw it up.
This is a cross post from the Righteous Investor.
@roger At any rate, as I read the propositions for this passport-revoquation-rider a while back, there would need to be some sort of tax assessment or notice of deficiency before a passport application could be blocked. However, I suspect that there are already mechanisms in place to keep US persons from leaving the United States if IRS wants to pursue them.
Given the requirements in (22CFR?) that require, except in exceptional circumstances, a US Passport for a US Citizen to cross the border, I wonder what would happen in the case of a US Citizen resident abroad, with the nationality of, and immediate family in, his country of residence? Worst case, he would be stranded from his family and unable to invite them (inability to show financial support because the IRS would garnish the person), and unable even to visit his family abroad.
@Jefferson no recent news. The last thing that happened was like Roger said, S 1813 (with all its amendments) passed the Senate but the House voted on it and didn’t get enough support, so they passed a 90-day transport funding bill instead. It hasn’t come up for consideration again since, so there’s no news; it’ll probably come back in June or so.
Here’s my post about it.
Here’s a Forbes article from a few weeks ago.
“…They passed a 90-day transport funding bill instead”
Typical… I’m sorry, but the Presidential system is completely broken in the US. They need a full parliamentary system to be able to govern there nowadays it seems, but I guess that Americans would hate that since they wouldn’t be able to vote for an elected monarch directly anymore!
Well, if they had enhanced referendum and initiative capabilities, like Switzerland does, they might be able to break the 2-party-system deadlock.
Good idea. Popular referendums seem to be the only way to get politicians to account for the wishes of the people in many countries nowadays.
On the other hand though, if the US had a popular referendum system in place I imagine that somebody would be bringing to the ballot right now measures banning former citizens from entering the US, stripping Severin of all US assets, removing the FEIE, maybe even removing the ability to renounce entirely. With the fallout from Bachmann’s Swiss citizenship debacle maybe somebody would add an initiative to ban dual citizenship.
@Jefferson, as a general rule if the person has a US passport and is inside of the US, then the fact that the person may hold a foreign passport is of no avail. If you are jailed the police will not notify consular officials of your other country of citizenship so they can visit you, because, since you are a US citizen, they are totally helpless to intervene
The same is true if a US citzen is present in another country that considers it to be its citizen. You can expect zero help from US consular officials. The language, as printed in US passports, reads as follows:
It is note 14: “DUAL CITIZENS. A person who has citizenship of more than one country at the same time is considered a Dual Citizen. A dual citizen may be subject to the laws of the other country that considers that person its citizen while in that country’s jurisdiction, including conscription for military service. Dual nationality may hamper efforts to provide US Consular protection to dual citizens in the other country of their other nationality. Dual citizens who encounter problems abroad should contact the nearest US Consulate or Embassy.”
What this really means is that if you essentially can forget about getting any help from consular officials of your other country of citizenship. Some times it is hard enough to persuade the authorities of the country where you are to allow you to contact your consular authorities at all.
International conventions guarantee that you may make such contacts, but sometimes local police have been known to ignore these requests. It happened recently in the US when a Mexican national was arrested, tried and convicted of murder. The officials were aware that he was a Mexican national, but they failed to advise him that he had a right to ask to make such contact, because he did not realize he had this right. He appealed his conviction and it went all the way to the Supreme Court which ruled against him. So he was executed. Apparently is was a clear and irrefutable case of being guilty of a henious crime, so he was grasping for a straw to save his own life. But his attempt failed.
As I recall his request was rejected because of a technicaligy in US law. Texas authorities did not mention his right to contact the Mexican consulate because there is, or was not at that time, any Federal Law which obligated the states to respect the provisions of Federal Government Consular agreements like this.
ACA was very much interested in this because if the US does not respect this right than it places US citizens at a greater risk they they might also be denied this privilege if under arrest in a foreign country. I am not sure if Congress has corrected this yet.
You guys really think this guy is a hero? He came to the US because he was on the list to be kidnapped and ransomed, the US basically saved the guy’s life, and was completely amicable in allowing him to be a naturalized citizen. Then just by luck he was placed in the same dorm room as Mark Zuckerberg. If the movie’s portrayal, and the reporting has any shred of truth this guy is a douche, but if he’s a hero to you all? I just don’t have words.
Look, if you’re an American acquired or born into it and you don’t feel like an American and that this is your country nothing should stop you from leaving and being happy anywhere else. Cut your ties to the US and end your American citizenship and connection, but I’m really getting disturbed by some of the stuff I’ve read on here.
I think some of you should look in a mirror, you guys are celebrating and cheering on anytime something bad or negative happens or is reported about the US, do you really feel like you’re the same type of people who cheered in the streets on 9/11?
@roger There are State Department recommendations for law enforcement agencies in the US that encourage them to allow a dual national to contact his consulate if he so wishes. (http://travel.state.gov/pdf/cna/CNA_Manual_3d_Edition.pdf) I doubt that all agencies would respect these recommendations in all cases as such Dept. of State recommendations do not have the force of “federal statute” proper (nor even of CFR as far as I know).
As far as I am concerned the Vienna Convention on Consular Relations REQUIRES US authorities at least to allow a detainee to communicate through his consulate (treaties are supposed to have the force of law, but it appears that the US considers VCCR not to have the status of a self-executing treaty), but I know that US law enforcement agencies have not always allowed even non-US nationals to do so.
The master nationality rule of international law may block INTERVENTION or the JURISDICTION of a foreign nation’s authorities and laws in the US on behalf of a dual-national, but not the right to contact mandated by the VCCR.
It helps if one knows of the VCCR and invokes it. I believe that in many cases, the detainees did not know of the convention or did not know how to articulate their right to such consular contact as is mandated therein.
In any case, even if a detainee is a US citizen, he may not have any US-resident relatives that he knows how to contact: his family abroad need to be informed of his detention (as do the authorities of his foreign country of residence, otherwise they will be knocking on doors looking for the person at tax time).
@ Whoa, I think Zuckerberg was lucky that Saverin was his roommate. It is not always easy for entrepreneurs to find start up money.
I didn’t say Saverin is a hero. I said that the United States media should take the high road. You know if you divorce your wife when you go on and on about how evil and wicked she was, eventually people are going to say that there was something wrong with you, and they will realize that you are just vindictive and petty, and you really have a problem moving on. The opposite of petty vindictiveness is magnanimity. And I am suggesting that the US press needs to be magnanimous. Saverin did nothing wrong; he exercised his right to expatriate. I demand that same right. The recent exit laws of the United States are petty and vindictive towards those who expatriate and the laws and fundamental principles of the government of the United States, from the foundation of the country, are in direct violation of this attitude of retribution. You display it in full colours and I’m glad you have. Thank you for illustrating my point.
@Whoa, I don’t have feelings one way or another about Saverin except to say that he has to do what works for him. I don’t think he’s a hero, nor do I think he’s a traitor. He’s just someone else trying to make a life that works for them. Albeit with quadrillions more than I have, but still, the principle is the same.
And by the way, oh puuhlease, the US basically saved his life? He could have gone anywhere, Canada, France, Britain, anywhere and could have become a naturalized citizen. By joining up with Zuckerberg he helped to create thousands of jobs, helped the US economy. Why is he being held hostage by that? Hasn’t he done enough? Why does he owe the US forever?
@Woah,
The bottom line is that if US citizenship was such a great deal, the “Facebook dude” would not have renounced.
The US is long overdue for a serious self-check on citizenship-based taxation.
@WhoaIt’sSteve I am not going to judge Saverin neither as a hero, nor as a villain, nor anything in between. I suspect that US tax policy scared him away back to Brazil where things might look greener than they did a while back. Maybe he feels that if he doesn’t leave now he might be effectively prevented in the future. In any event, the Universal Declaration of Human Rights gives him the right to choose to be Brazilian exclusively. What he may or not owe to the US because of protection from what may have happened previously to him in Brazil before is another matter.
What is clear to me is that cases like his are brought out by the media with an effect that discredits others who renounce US nationality without objective evaluation of each case. The point is that the media pays plenty of attention to people like him, and not enough to the Peter Dunns and plenty of other people of comparatively modest means that are oppressed by the US policy of FATCA, FBAR, double taxation, and who want to renounce or at least be freed of the double burden.
Whether Eduardo is a good person or not isn’t something any of us will be able to judge because we don’t know him.
What’s important is that somebody has finally stood up to the US government in a way that they will pay attention. It may take more people like Eduardo expatriating before the US realizes that you can’t abuse your citizens without eventually paying a price for it.
People immigrate to the United States to be free from oppression. When the US government becomes the oppressor, it’s time to find a new country.
@WhoaIt’sSteve
I don’t think Eduardo Saverin is a hero. (My thoughts were in this post). Nor do I think he’s a villain. And nor do I think the U.S. did something particularly praiseworthy for him. It’s not as if the INS gave his dad a visa for humanitarian reasons. As mentioned all along his family was wealthy already in Brazil. If he was a middle-class kid he’d have never got a visa and you’d be seeing his picture on the back of a Brazilian milk carton. Anyway Saverin wouldn’t have starved or got kidnapped without the US; his family could have gone to Europe and by now he’d be an investment banker in London or something equally “useful”.
By the timing, I’d guess they Saverin family were one of the first users of the EB-5 investor visa program. Those who blame Saverin for treating his citizenship as nothing more than a business transaction should remember that the U.S. treated his dad’s visa the same way. I’d say the U.S. came out ahead on that trade; the IRS got some tax dollars they wouldn’t have otherwise had, Hollywood got an inspiration for a movie, and an entrepreneur got some seed money for an idea that probably wouldn’t have been funded by any of the usual angel investors at the time. The proper word for both sides of this trade is “amoral”.
@Joe Expat, I totally agree with you that the US ought to repeal citizenship-based taxation and adopt the same residence based taxation, which is the policy of every other civilized nation on the face of the earth. The current US tax policy creates problems for US citizens residing abroad which citizens of other countries living abroad never confront.
In my feeble way I have been espousing this point of view for the past 36 years since it was this policy that forced me to make a decision I never anticipated I would have to make: chose between becoming a naturalized citizen of Brazil and in so doing renounce my US citizenship, or resign from position in Brazil and return to the United States to look for a new job.
In those days hardly anybody was proposing the total elimination of US taxation of its non-resident citizens. George P Shultz, ex Labor Secretary and Ex Treasury Secretary in the Nixon Administrations made this statement at a hearing conducted by the House Ways and Means Committee on subject of “proposals relating to sections 911 and 912 of the Internal Revenue Tax Code dealing with earned income from sources outside of the United States” on February 23, 24 1978. We both sat at the same Witnesses table where we both presented our testimonies.
He was president of Bechtel Corporation at the time of that hearing. He included in his testimony the specific case of one of their married engineers working on a design and construction project in Saudi Arabia whose tax obligation on his $40,000 salary was $51,000. He did not go into the details, but did mention that the value of company-provided housing in the remote area where he was assigned plus tuition reimbursements for private school education for his children, all of which is considered as taxable income, placed him in a situation where, after paying his tax obligation, he had less then zero left to live on.
But in spite of this, Mr. Schultz made this statement, which I still remember and which is recorded in the printed testimony: He did not propose the elimination of citizenship based taxation but recommended that it be structured so there be allowances for working in overseas areas and “a substiantial income exclusion.”
I did not have an opportunity to discuss this with him, but I did not see then nor do I see today how it is in any way possible for US citizen personnel to be competetive with non-US personnel who are never taxed based on their citizenship. It just does not work. It is like trying to have your cake and eat it too.
US companies back then had been #1 in these labor intensive design and construction contracts in the Middle East. They dropped to #7 two years after the enactment of the Tax Reform Act of 1976 and essentially ceased to even bother to bid on these contracts after that, becuase there was no way they could profitably price competetively given the necessity to compensate their US professional employees additionally to cover their additional tax costs plus the tax on those tax reimbursements.
Looking through the list of companies whose representatives testified at this hearing, other than Bechtel, I checked on the Internet and none of the others even exist today. And when the US lost this market it also lost the export market for products employed to implement them. As Mr. Schultz stated, when a German company won the contract they sources their equipent from Germany, the Frenh from France,the Japanese from Japan, the Koreans from Korea, the Italians from Italy, etc. There was nothing requred to implement these products that was available only from US sources.
And that is why the cumulative US trade deficit, whih began in 1976, now exceeds $8.6 trillion. For the last 12 months it is $746 billion and is increasing by $2 bilion with every passing day.
Cheers Roger.
When it comes to ex-pats, Uncle Sam behaves like a “type 2 control freak.”
@WhoaIt’sSteve,
In light of the criticism levelled at Saverin, what would you think about our fellow Americans who choose to hide from paying taxes INSIDE the US by incorporating in the State of Delaware (among other US states)? A respected Harvard study http://blogs.law.harvard.edu/corpgov/2011/02/18/exploring-the-role-delaware-plays-as-a-domestic-tax-haven/ says that the tiny state of Delaware meets the criteria of a tax-haven for a huge percentage of Fortune 500 companies:
see:
http://www.nytimes.com/2012/05/04/opinion/solving-the-corporate-tax-code-puzzle.html
or,
http://www.nytimes.com/2009/05/30/business/30delaware.html
“In recent months, the Delaware loophole has drawn heated criticism from the world’s leading offshore tax havens, including Switzerland and the Cayman Islands.
In April, a senior official of the Cayman Islands Financial Services Association asserted that Delaware, along with Nevada and Wyoming, promoted tax evasion and money laundering, thus qualifying the United States as a tax haven. Federal officials view the issue as a state matter and are not pushing for changes in Delaware, the home state of Vice President Joseph R. Biden Jr. ”
or,
http://danieljmitchell.wordpress.com/2009/11/02/the-worlds-best-tax-haven-in-america-but-unavailable-to-americans/
or Wyoming, and Nevada, etc., see the list below;
http://today.msnbc.msn.com/id/47281457/ns/business-personal_finance/
In contrast, we just want some fairness applied to the treatment of those living outside the US – who pay their taxes in full where they work, earn and live.
@Whoait’sSteve,
Just a last comment; many of us are living in places where we pay much more tax already than the average American inside the US – and our countries of residence are NOT tax havens.
The US knows this. The US knows about Delaware, and Nevada, etc. That is one of the reasons why we resent our treatment being justified by what we know to be false – and deliberately disingenuous on the part of those who continue to pretend that whatever harm comes to us – is in the name of stamping out ‘tax havens’ and ‘hidden accounts’ – like the politician Neal – who says that the US and IRS should know what is going on inside accounts of US persons OUTSIDE the US – knowing full well about Delaware, Florida, Texas, etc.
Would you be able to swallow that without choking?
The story of the 51’000 tax burden on 40’000 of actual income is frightening. Not all companies will not be willing to structure their packages differently for Americans, and this will shut more Americans out of the foreign job markets. What happened with this guy? Did he actually pay up or did he work something out with the employer or the IRS?
@Jefferson, what happened in this particular case was not known, but inthe testimony presented at that hearing by Robert Gants of US and Overseas Employees Tax Fairness Committee, which represented several engineering and construction trade organizations at this hearing, indicated that some 75% of the companies he represented had employees whose tax obligations exceeded their salaries. That was not 75% of their total American employees, but the organizations.
In all probability these people were sent back home or returned on their own. There was a really mad scrable on the part of these American companies to replace US citizen personnel with qualified personnel from other countries, but it largely failed. These contracts just fell apart. There was no way the companies coud pass on these additional tax costs to their customers, because they were generally fixed price contracts. Some of them were cost-plus contracts, but universally the end customers footing the bill rejected reimbursement of their American citizen employees for the massive tax increase that resulted from the Tax Reform Act of 1976 as being “legitimate” costs, so they just refused to pay American companies more to cover these new additional costs.
I recall from subequent news back in those days that many of them were subjected to massive failure-to-perform penalties that led to their bankruptcies. That’s why US companies just disappeared from the International market for these kinds of contracts.
Referring to the printed record of this hearing, here is the response Ex-Secretary George Shultz, testifying as the president of Bechtel Corporation, to questions and coments of Congressman Frenzel of Minnesota in explaining the predicament of their employees who suddenly found themselves in this tax trap where suddenly their tax obligation exceeds their salaries:
“Beyond that if we say to the individual “well, you stay there, we are going to work on this problem, there are hearings before the Ways and Means Committee and those are reasonable people and we are going to present your case and we are going to stand behind you and as a company until this gets resolved.” Then he went on to explain the objections of their clients in covering this additionl tax cost, in addition to their having to pay for the employees housing and the education for their children, but also the effect of US tax and then the tax on the tax, and then the tax on that tax, and the whole roll up, which becomes gigantic.’ ” And then the customers respond with “well when we talk with nationals of other countries, we don’t have this problem.”
Well we all know that the optimism of Secretary Shultz that Congress would solve the problem was over optimistic. There were certain members of Congress who simply did not want Americans to live and work overseas, and it was their views that prevail to this day.
Senator Proxmire from Wisconsin also testified at this hearing. His position was that we don’t offer tax breaks for persons living in high cost areas in the US so we should not do it for those that go overseas either. He was obsessed with Americans overseas spending their tax evasion dollars, swaithed in mink, at the gambling tables of Monte Carlo. His position was that the Market would work this out. In that he was right. Amercan companies employing US citizens with this extra tax obligation coud not compete and the market was lost.
@roger This is a really good example of how US tax policy destroys American competitiveness. Imagine being caught as an employee in Saudi in such a trap (exit visa required to leave the country, employer has to approve). One could have returned to the US with a burden of taxes that could not be paid off for years (especially with the accumulation of late payment penalties and interest).
It is unfair to rape people who are trying to work when others are getting handouts.
Just tried to comment to Mr. Casey about his proposed Ex PATRIOT Bill. But you need a US address to send him an e-mail. You can get around this by inputting an old address, perhaps, but I think this is indicative of his level of concern for his constituents living overseas.
Pretty shocking comments. What hubris. Not one mention of civic responsibility, fairness or nuanced thought. Just plain unabashed HUBRIS. Justifications of why you are better than others and deserving of your riches.
Buffett, Gates and Winfrey have more money than all of you. The difference is that they also have morals and character. They pay taxes. They are philanthropists. They are Americans. You never were. You apparently never paid attention to that lesson.
Greed and hubris is nothing new. We’re better off without you. Don’t try coming back when your world begins to shake. You don’t belong here.
@ not sorry to lose you, Thanks for your comment. You are always welcome here to make comments. Please come by and make such comments over and over again.
But on your use of the word “hubris”:
I have civic responsibility: to the country which took me in as a foreigner, taught me their language, gave me a career, healed me when I was injured, tolerated my many ignorant breaches of their manners and customs, and asked barely anything in return.
Plain unabashed HUBRIS would be the country I left 10 years ago screaming at me that I owe them an unrepayable debt for which I must forever pay taxes, and constantly accusing me and my fellow emigrants of being disloyal fatcat elitist unassimilated-immigrant traitors if we question that idea.