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| Facebook co-founder Mark Zuckerberg has faced a backlash over his new charity initiative |
FACEBOOK CEO Mark Zuckerberg has refuted claims his new charitable endeavour is an elaborate scheme to avoid paying tax in the United States.
Mark Zuckerberg this week announced that he and his wife Priscilla Chan would donate 99 per cent of their Facebook shares – currently valued at a staggering $45 billion, some £30billion – to "advancing human potential" and "promoting equality."
The hugely successful couple, who recently welcomed their first child Max, will donate the majority of their wealth over the course of their lives.
On the surface, the generous gesture appeared to be the latest in a string of philanthropic endeavours kickstarted by successful technology entrepreneurs.
But critics have blasted 31-year-old Mr Zuckerberg for establishing his philanthropic project as a limited liability company rather than a charitable foundation.
Setting up the Chan Zuckerberg Initiative as a limited liability company – or LLC – allows the Zuckerberg couple a greater freedom to use their money as they please.
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| Microsoft founder Bill Gates with wife Melinda Gates, who started a charitable foundation in 2000 |
Charitable foundations – like the Bill and Melinda Gates Foundation, another philanthropic project by a prominent technology entrepreneur – cannot invest in any for-profit businesses and are unable to engage in political lobbying under US law.
However – as an LLC – the Chan Zuckerberg Initiative will be able to turn a profit, invest in profitable firms and make donations to politicians.
Some critics also questioned whether there would be tax benefits to Mr Zuckerberg and Ms Chan donating their Facebook shares to an LLC instead of a charitable foundation.
Facebook co-founder Zuckerberg has been forced to defend his decision to establish the Chan Zuckerberg Initiative as an LLC.
In a post on his Facebook page, he wrote that "just like everyone else, we will pay capital gains taxes when our shares are sold by the LLC."
"By using an LLC instead of a traditional foundation, we receive no tax benefit from transferring our shares to the Chan Zuckerberg Initiative, but we gain flexibility to execute our mission more effectively," he added.
"If we transferred our shares to a traditional foundation then we would have received an immediate tax benefit, but by using an LLC we do not."
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| Mark Zuckerberg and wife Priscilla Chan will donate 99 per cent of their Facebook shares |
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| Mark Zuckerberg and wife Priscilla Chan made the announcement after the birth of their first child |
Mr Zuckerberg also addressed criticism that – unlike the Bill and Melinda Gates Foundation – his own Chan Zuckerberg Initiative is able to invest in profitable firms and political donations.
He posted: "This enables us to pursue our mission by funding nonprofit organisations, making private investments and participating in policy debates — in each case with the goal of generating a positive impact in areas of great need.
"Any net profits from investments will also be used to advance this mission."
Writing on his Harvard University blog, Dr Philip Greenspun argues that the LLC could be an Estate Tax avoidance scheme for Mark Zuckerbeg and Priscilla Chan's first child, Max.
"Let’s suppose that Baby Max owns shares in this LL," he writes.
"If she acquires them today, before any Facebook stock or proceeds from selling Facebook stock are transferred in, she hasn’t received anything of value and has no tax liability.
"The LLC can invest its assets however it wants to, e.g., it could buy shares in an Ireland-based pharma company or fund a startup medical device firm in Singapore or China.
"If those investments prove more productive than Zuckerberg’s adventure in the Newark public school system, Grown-up Max will own a stake in something worth tens of billions of dollars."
"Can it truly be this simple to say goodbye to $18 billion in federal estate taxes (plus potentially additional state estate taxes, depending on where the happy parents choose to live out their golden years)?"
In his second Facebook post, Mr Zuckerberg also opened up about where some of the $45 billion donation would be used.
He reiterated that the Chan Zuckerberg Initiative will be focused on areas like education and disease.
However Mr Zuckerberg also indicated the efforts would be similar to philanthropy he and his wife, Priscilla Chan, had already supported.
Their recent donations include $20 million to EducationSuperHighway – which helps connect classrooms to the Internet – and a new acute care and trauma centre at San Francisco General Hospital, where Chan works as a paediatrician.
Chan and Zuckerberg said on Tuesday that 99 percent of the stock they hold in Facebook would go toward the philanthropic project over their lifetimes.
Responding to a comment he would pay "ZERO tax" for the initiative's investments that was made in reply to his Facebook post on Thursday, Zuckerberg denied that was the case.
"Please don't spread inaccurate information," he posted.
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