Comments on: Investing in loopholes, MLP ETF edition http://blogs.reuters.com/felix-salmon/2010/06/30/investing-in-loopholes-mlp-etf-edition/ A slice of lime in the soda Sat, 25 May 2013 16:48:33 +0000 hourly 1 http://wordpress.org/?v=3.4.2 By: SteveHamlin http://blogs.reuters.com/felix-salmon/2010/06/30/investing-in-loopholes-mlp-etf-edition/comment-page-1/#comment-16291 SteveHamlin Wed, 30 Jun 2010 18:41:09 +0000 http://blogs.reuters.com/felix-salmon/?p=4510#comment-16291 However, it appears that by putting MLPs inside an ETF (a corporation), the ETF is obligated to pay income tax on the income from the MLP. (see Tadas' links to the IndexUniverse articles on MLP ETFs which include such statements from the ETF creator) So sure, the MLP itself doesn't pay income tax, and if an individual owns the LP units then the income is only taxed once, at the LP owner level (a individual). However, if the LP owner is an ETF (a corporation) then the ETF must pay income tax on the MLP distributions the ETF receives before distributing those proceeds to the ETF owners - and you're back to double taxation, defeating one of the main upsides of the MLP structure to begin with. However, it appears that by putting MLPs inside an ETF (a corporation), the ETF is obligated to pay income tax on the income from the MLP. (see Tadas’ links to the IndexUniverse articles on MLP ETFs which include such statements from the ETF creator)

So sure, the MLP itself doesn’t pay income tax, and if an individual owns the LP units then the income is only taxed once, at the LP owner level (a individual).

However, if the LP owner is an ETF (a corporation) then the ETF must pay income tax on the MLP distributions the ETF receives before distributing those proceeds to the ETF owners – and you’re back to double taxation, defeating one of the main upsides of the MLP structure to begin with.

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