updated 7:59 PM CEST, Apr 2, 2020

U.S. charges Russian bank exec over failure to pay expatriation tax

The U.S. Justice Department has formally charged a Russian billionaire currently resident in the UK with failing to pay a tax on his worldwide assets when he renounced his U.S. citizenship, days after his company's initial public offering in 2013, according to government documents and media reports.

The case is said to be the first in which a "voluntary U.S. expatriate" has been publicly-accused of evading the U.S. exit tax, which is required for those whose worldwide assets are worth more than US$2million, and for this reason it has caught the eye of American tax experts and others in the expatriate and dual-citizen sector.

The arrest of Oleg Tinkov in the UK at the end of February, which was covered by such media organizations as the Daily Mail, Financial Times and Express newspapers and websites, was seen as an important indication of the U.S. government's intention of going after individuals who think they might be able to slip through the "exit tax" net.

The Justice Department unsealed a tax evasion indictment against Tinkov on March 4, following his arrest in London, according to a government statement. The next day, the Financial Times reported shares in his London Stock Exchange-listed company, TCS Group Holding Plc, closed down almost 25%, and also reported that Tinkov had revealed that he was "battling cancer". 

Tinkoff paid £20million (US$1.2million) in bail to avoid being locked up while he fights extradition to the U.S., media reports said.

At issue: Under-
reporting income, assets

In a statement released by a U.S. Justice Department district office in California, Tinkov, a Russian national, "renounced his U.S. citizenship" on Oct. 28, 2013, three days after TCS's IPO in London made him "the beneficial owner of more than US$bn worth of TCS shares".

It continues: "Tinkov’s decision to renounce his citizenship was a taxable event requiring him to report to the IRS the constructive sale of his worldwide assets, report the gain on the constructive sale of those assets to the IRS, and pay tax on such gain to the IRS.

"According to the indictment, despite knowing he beneficially owned more than US$1bn of TCS shares at the time of his expatriation, Tinkov filed a 2013 U.S. Individual Income Tax Return with the IRS that reported total income of less than US$206,000.

"In addition, Tinkov filed a 2013 Initial and Annual Expatriation Statement reporting his net worth was IS$300,000."

Pending his extradition to the U.S. Tinkov faces a potential maximum sentence if convicted of three years in prison and a fine of US$250,000 for each of two counts of tax fraud he's currently charged with, in addition to a period of supervised release, restitution, and monetary penalties.

According to the TCS Group website, Tinkov launched his bank in 2006. It now is said to have around eight million customers in Russia, and in 2017, The Banker named it Russia's Bank of the Year. 

Tinkov's studies as a younger man took him to the University of California at Berkeley, and he became a naturalized U.S. citizen in 1996. 

Prior to founding the bank, Tinkov founded a frozen food producer called Daria in the 1990s, and in 2003, he launched both a beer and a restaurant chain under the Tinkoff branding. 

Case recalls that of
Facebook co-founder Saverin

Tinkov's case is reminisicent of an earlier case involving a naturalized American entrepreneur, Eduardo Saverin, a Brazilian who came to the U.S. with his family in the 1990s but renounced his citizenship in 2011. However, unlike Tinkov, he managed to formally renounce before Facebook, of which he was a co-founder, went public in 2012.

The fact of Saverin's seemingly-opportunistic renunciation so infuriated two U.S. senators -- Democrats Chuck Schumer and Bob Casey -- that they sought to introduce legislation that would introduce hardships for those who renounced with the intention of avoiding paying U.S. taxes, including a ban on being able to return to the U.S. and a tax of 30% on any U.S. investments they held, going forward. 

Thus far such legislation has yet to make its way into law. However, as reported, Democratic U.S. presidential candidate Bernie Sanders has said that he would look to tax "all wealthy individuals" who might seek to relinquish their U.S. citizenships once his proposed "Wealth Tax" came into force, if he were elected, although details as to what exactly this might mean have not been given.

Saverin, who had moved to Singapore in 2010, said at the time that he had not renounced his citizenship for financial reasons, but because he had no plans to return to live in the U.S. Press reports in 2012 noted that although he would not have had to pay an exit tax based on the IPO value of Facebook, he would have still faced a hefty bill that would have been based on the shares he held in the pre-public entity.

Saverin co-founded Facebook while at Harvard with Mark Zuckerberg, Dustin Moskovitz and Chris Hughes. 

 

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