Cross-Border Tax Impact

Model the delta between gross and net returns for foreign LPs investing in US LLCs vs. Corporate Blockers.

Structure	Net to LP ($M)	Effective Tax Rate
Direct (Pass-Through LLC)
MEUS Leveraged Blocker

ECI & Branch Profits Tax

If a foreign LP invests directly into a US pass-through entity (like an LLC) engaged in a trade or business, they generate Effectively Connected Income (ECI).

ECI is taxed at the highest corporate rate (21%). Worse, it triggers the Branch Profits Tax (an additional 30% on after-tax earnings), pushing the effective rate past 44% before state taxes.

Our blocker strategy caps the corporate tax at 21% and strategically strips earnings via interest deductions, minimizing or eliminating the Branch Profits Tax and capital gains drag at exit.

No-JS Fallback Form

function taxTool() { return { income: 10, gain: 40, isFirpta: 'no', calculated: false, directNet: 0, directRate: 0, blockerNet: 0, blockerRate: 0, calculateTax() { const totalPreTax = this.income + this.gain; if (totalPreTax <= 0) return; // Scenario 1: Direct Pass-Through // Corporate rate 21% on operating income, Branch Profits Tax 30% on remainder let directTaxOperating = (this.income * 0.21) + ((this.income * 0.79) * 0.30); // Capital gains on exit of partnership interest (if ECI or FIRPTA) let directTaxGain = 0; if (this.isFirpta === 'yes') { // FIRPTA taxes gains as ECI directTaxGain = (this.gain * 0.21) + ((this.gain * 0.79) * 0.30); } else { // Rev. Rul. 91-32 / TCJA Section 864(c)(8) applies to sale of partnership interest engaged in US trade directTaxGain = this.gain * 0.21; // simplified corporate rate } const totalDirectTax = directTaxOperating + directTaxGain; this.directNet = (totalPreTax - totalDirectTax).toFixed(1); this.directRate = ((totalDirectTax / totalPreTax) * 100).toFixed(1); // Scenario 2: Blocker Corp (Leveraged) // Blocker pays 21% corp tax, but interest stripping reduces taxable income (assume 40% reduction) const strippedIncome = this.income * 0.60; const blockerTaxOperating = strippedIncome * 0.21; // Sale of blocker stock is NOT taxed to foreign seller unless it's a USRPHC (FIRPTA) let blockerTaxGain = 0; if (this.isFirpta === 'yes') { blockerTaxGain = this.gain * 0.21; // FIRPTA applies } const totalBlockerTax = blockerTaxOperating + blockerTaxGain; this.blockerNet = (totalPreTax - totalBlockerTax).toFixed(1); this.blockerRate = ((totalBlockerTax / totalPreTax) * 100).toFixed(1); this.calculated = true; }, init() { this.calculateTax(); } } }

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