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Lol. I just realized why people aren't understanding my other comments about why this debate matters. Here's an explanation: Capital gains on the sale of capi

by rprasad 14y ago

Lol. I just realized why people aren't understanding my other comments about why this debate matters. Here's an explanation: Capital gains on the sale of capital assets (i.e., stock) by foreign persons are not taxable by the U.S. Only certain types of capital investment (i.e., real property or income that is connected to a U.S. business activity) is taxable by the US. See generally Section 871 and its accompanying regulations. Capital gains by foreign persons are generally taxed by the foreign person's country of residence unless the foreign person has a tax nexus to the U.S. Generally, the tax nexus is provided by citizenship, actual residence, or deemed residence. Id. Eduardo is not an actual or deemed resident of the U.S., thus his only tax nexus was via his citizenship. By renouncing his citizenship, he severs that last bit of tax nexus. Consequently, the sale of the Facebook stock is now taxable only by the foreign jursidiction in which he is a citizen/resident. In this case, Singapore does not impose a capital gains tax, so he would effectively not be subject to any tax at all on the sale of his Facebook stock. This matters because Singapore is one of the few non-tax haven jurisdictions that provides for no capital gain taxation. It's also unusual that he did so around the same time that Facebook began publicly indicating it would move toward an IPO, despite Eduardo having been eligible for Singaporean citizenship for some time before he actually renounced his U.S. citzenship. Note also that Eduardo "resides" in Singapore but spends significant amounts of time outside of the country. This is why so many people (including myself) think Eduardo renounced his citizenship to avoid paying taxes. It's the circumstances surrounding his renunciation which are suspicious. If he'd chosen to move to Europe, or China, or Hong Kong, or some other place, it wouldn't be an issue. But based on the totality of the circumstances, it looks like tax avoidance was his primary motive. Hope this helps.

beagle3 14y ago
> In this case, Singapore does not impose a capital gains tax, so he would effectively not be subject to any tax at all on the sale of his Facebook stock. This is blatantly wrong. The US, since 2008, has an exit tax. For the purposes of US taxation, what happens is that on the day that he loses his US citizenship, US-Eduardo sells all his things to Singapore-Eduardo at fair market price. Thus, he pays capital gain taxes up until that day. After that day, it is up to the new jurisdiction: Singapore won't tax him for any further gains, most other countries would. Either way, if facebook goes down between the day he loses citizenship and the day he actually sells, he has lost money. He's saved some taxes already, but that's a result of a bet. Another way to make the same bet would have been to buy a call option (or sell a put option, or go long a forward or future) on Facebook stock. Schumer is just looking for votes and publicity. And the media are happy to distort the story to make villains and heros, because they sell more ads that way.
- deleted 14y ago
  [deleted]
  - beagle3 14y ago
    > The exit tax only applies to tax the built-in gain (appreciation) of Eduardo's assets at the time the renunciation is effective, but not to the sale of his Facebook stock itself. In law, little technical details like that matter. Is that describing a different end result than the way I described it? recap: >> on the day that he loses his US citizenship, US-Eduardo sells all his things to Singapore-Eduardo at fair market price. Thus, he pays capital gain taxes up until that day Alternatively, assume US-Eduardo sells it to his cousin Singapore-Eduardo2, pays capital gain taxes to the US, and -- once no longer a US citizen, gives the remaining money back to cousin Singapore-Eduardo2 as a gift, and cousin Eduardo2 gives the shares back to Eduardo (now Singapore-Eduardo) as a gift. Singapore has no gift tax, so this is probably kosher with Singapore (I'm not familiar with Singapore tax law, but I know of other jurisdictions in which this is perfectly fine). There is a complete disconnect between appreciation until denunciation and appreciation(or depreciation) after that date, while the overall effect for everyone involved is exactly the same, and everything is legal in all jurisdictions. Practically, this is what is happening. > The hubub is about the appreciation between the renunciation effective date, when Eduardo paid taxes on his Facebook stock, and the IPO today/tomorrow, when he sells that stock. That appreciation is not taxed by the U.S., nor by Singapore So, it's a hubbub about envy and nothing else. Had he done that a couple of years ago, or a couple of years from now, no one would have cared; or if there was no hype about a 25% increase, which would mean there were essentially $0 to be collected. It's only because people believe that luckily for him, the week his denunciation was accepted (note: he applied for it 8 months ago!), the stock jumped 25%, and that he has a chance to realize that profit next week. > and that is the appreciation that the Senator is attempting to capture with his crazy law. Now it is a crazy law. And just a few posts ago, you seemed to be supportive of measures that would tax saverin better... interesting. > If the value of the facebook stock had gone down between the time he paid taxes and the time he sold, he would have be able to recover that money on his U.S. tax return for 2012 That is news and surprising to me. I'll take your word for it, since you are the expert (I just pay experts too much to do my taxes, and don't claim to have comprehensive understanding). But that just means that there's a bug in the tax code that needs fixing: If I'm not mistaken, if you become a US tax payer in september, you don't have to pay taxes for gains earlier that year, and you cannot take credit for losses earlier - only from the date you became a tax payer. The symmetry would require that you should not be able to take credit for losses after losing your tax payer status, just as you don't have to pay for gains after losing that status. Apparently there's a bug, and that's what needs to be fixed -- not introduction of new laws. They have until the end of the year to fix it. Also, if there were no deals in facebook shares that week, the IRS should be able to claim the value was already IPO-high at the day of renunciation, and if challenged, a court might even find that reasonable.

by rprasad 14y ago

beagle3 14y ago

> In this case, Singapore does not impose a capital gains tax, so he would effectively not be subject to any tax at all on the sale of his Facebook stock. This is blatantly wrong. The US, since 2008, has an exit tax. For the purposes of US taxation, what happens is that on the day that he loses his US citizenship, US-Eduardo sells all his things to Singapore-Eduardo at fair market price. Thus, he pays capital gain taxes up until that day. After that day, it is up to the new jurisdiction: Singapore won't tax him for any further gains, most other countries would. Either way, if facebook goes down between the day he loses citizenship and the day he actually sells, he has lost money. He's saved some taxes already, but that's a result of a bet. Another way to make the same bet would have been to buy a call option (or sell a put option, or go long a forward or future) on Facebook stock. Schumer is just looking for votes and publicity. And the media are happy to distort the story to make villains and heros, because they sell more ads that way.

deleted 14y ago
[deleted]
- beagle3 14y ago
  > The exit tax only applies to tax the built-in gain (appreciation) of Eduardo's assets at the time the renunciation is effective, but not to the sale of his Facebook stock itself. In law, little technical details like that matter. Is that describing a different end result than the way I described it? recap: >> on the day that he loses his US citizenship, US-Eduardo sells all his things to Singapore-Eduardo at fair market price. Thus, he pays capital gain taxes up until that day Alternatively, assume US-Eduardo sells it to his cousin Singapore-Eduardo2, pays capital gain taxes to the US, and -- once no longer a US citizen, gives the remaining money back to cousin Singapore-Eduardo2 as a gift, and cousin Eduardo2 gives the shares back to Eduardo (now Singapore-Eduardo) as a gift. Singapore has no gift tax, so this is probably kosher with Singapore (I'm not familiar with Singapore tax law, but I know of other jurisdictions in which this is perfectly fine). There is a complete disconnect between appreciation until denunciation and appreciation(or depreciation) after that date, while the overall effect for everyone involved is exactly the same, and everything is legal in all jurisdictions. Practically, this is what is happening. > The hubub is about the appreciation between the renunciation effective date, when Eduardo paid taxes on his Facebook stock, and the IPO today/tomorrow, when he sells that stock. That appreciation is not taxed by the U.S., nor by Singapore So, it's a hubbub about envy and nothing else. Had he done that a couple of years ago, or a couple of years from now, no one would have cared; or if there was no hype about a 25% increase, which would mean there were essentially $0 to be collected. It's only because people believe that luckily for him, the week his denunciation was accepted (note: he applied for it 8 months ago!), the stock jumped 25%, and that he has a chance to realize that profit next week. > and that is the appreciation that the Senator is attempting to capture with his crazy law. Now it is a crazy law. And just a few posts ago, you seemed to be supportive of measures that would tax saverin better... interesting. > If the value of the facebook stock had gone down between the time he paid taxes and the time he sold, he would have be able to recover that money on his U.S. tax return for 2012 That is news and surprising to me. I'll take your word for it, since you are the expert (I just pay experts too much to do my taxes, and don't claim to have comprehensive understanding). But that just means that there's a bug in the tax code that needs fixing: If I'm not mistaken, if you become a US tax payer in september, you don't have to pay taxes for gains earlier that year, and you cannot take credit for losses earlier - only from the date you became a tax payer. The symmetry would require that you should not be able to take credit for losses after losing your tax payer status, just as you don't have to pay for gains after losing that status. Apparently there's a bug, and that's what needs to be fixed -- not introduction of new laws. They have until the end of the year to fix it. Also, if there were no deals in facebook shares that week, the IRS should be able to claim the value was already IPO-high at the day of renunciation, and if challenged, a court might even find that reasonable.