Zuckerberg’s ‘pledge:’ Not so much charity as creative accounting

Ben D. Kritz

Ben D. Kritz

EARLIER this week, the world uttered a collective “awww” of delight when Facebook founder Mark Zuckerberg and his wife Priscilla Chan announced – in the form of a letter from Zuckerberg to the couple’s newborn daughter – that the new parents would donate 99 percent of their shares in Facebook Inc. to “advance various missions,” including medical research and finding solutions to gender inequality.

Most people interpreted the announcement as a pledge to give the Zuckerberg-Chan fortune—which is worth about $46 billion—to charity, but that is not actually the case. Instead, what Zuckerberg created was not a charitable entity, but a limited liability company (LLC), an ordinary corporate setup that is useful for organizing family fortunes.

It is certainly not a new or complicated idea—my father explained it to me when I was about 12—but what is rather novel about Zuckerberg’s application of it is that an LLC has never, as far as anyone knows, been organized on such a scale. Unlike a charitable foundation, which is how the Bill and Melinda Gates Foundation (whose endowment was over $44 billion at the end of 2014), an LLC is not required to make any charitable donations whatsoever in order to maintain its status; a foundation must donate the equivalent of at least 5 percent of its assets annually.

There are other advantages as well. An LLC, being nominally a for-profit entity, is not prohibited from lobbying activities or making political contributions; Zuckerberg and his wife have said that many of their philanthropic aims depend on being able to “shape the debate” on certain issues. There are no particular restrictions on the profit an LLC can earn, whereas a non-profit entity is limited to profits relevant to its stated mission. An LLC can invest and enter into joint ventures with strictly commercial businesses as well, whereas there are narrow limits on investment by non-profits.

The biggest beneficiary from Zuckerberg’s new enterprise, however, is the Zuckerberg family. Since the end of 2012, Facebook’s shares have more than quadrupled in value; if Zuckerberg were to sell any of them, he would be liable for a huge capital gains tax bill. By donating them to his new company, however—in essence, carrying out the same sort of “Double Irish” practice Facebook Inc. and other major tech firms follow (although to be accurate, it should be called the “Double Cayman” in most cases) – Zuckerberg can avoid virtually all taxes without losing control of the assets.

That is not to say that the money will not be put to beneficial use; the Zuckerbergs speak about their various advocacies with great enthusiasm, and have in the past been generous in sharing their fortune with various causes. But the whiff of tax-dodging—although completely legal—doesn’t sit well with some observers. In an interview with Bloomberg, Gabriel Zucman, an economics professor at the University of California at Berkeley rather acerbically said, “I applaud their emphasis on ‘promoting equality,’ but that starts with paying one’s taxes. A society where rich people decide for themselves how much taxes they pay and to what public goods they are willing to contribute is not a civilized society.”

As long as we’re on the topics of taxes and being uncivilized, President BS Aquino 3rd reportedly is refusing to certify as “urgent” the bill providing an across-the-board increase for government workers—a move that has been delayed so long, the lack of action could probably be considered some kind of human rights violation—because he is mortally offended that House Speaker Sonny Belmonte and Senate President Frank Drilon insist on pushing for a bill lowering income tax rates, a contradiction of the royal opinion that makes him look bad.

That he would make the government workforce—the vast majority of whom are conscientious and dedicated employees, despite the bad rap they occasionally get from the actions of relatively small number of malcontents—pay the price for his bruised ego is so appalling it almost defies comprehension. I, for one, am willing to suffer—nay, would welcome—the huge inconvenience that would be caused if the government employees did what they ought to do: Stand as one and walk off the job to teach their vicious misanthrope of a boss a lesson.



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