SEI Investments Distribution Co. (1 Freedom Valley Drive, Oaks, PA, 19456) is the distributor for the Global X Funds.

Check the background of SIDCO and Global X's Registered Representatives on FINRA's BrokerCheck.

On December 22, 2017, President Trump signed a sweeping tax reform bill with wide-ranging implications for individuals and businesses across the country. The headline aspect of the new bill includes a cut to the federal corporate tax rate from 35% to 21%.

Given that ETFs/Mutual Funds/Closed End Funds with greater than 25% exposure to MLPs are taxed as ‘C-Corporations’ (C-Corps), the natural question is how this change to the corporate tax rate will affect these funds.

One immediate impact is that MLP C-Corp funds will change their tax accrual rates. For example, in fiscal year 2017 the Global X MLP ETF (MLPA), which is our only MLP C-Corp fund, had an effective tax rate of 36.94%. This rate included deferred federal and state income taxes as well as franchise tax expenses. Given the passage of this tax bill, the new accrual rate has been set to 23.49% going forward.

Given that MLPA currently has a deferred tax asset (DTA), the change in the tax accrual rate is expected to have no immediate impact on the fund’s NAV. However, should the fund return to a deferred tax liability (due to future price appreciation in the fund’s holdings, or another reason) the fund would experience less of a ‘tax drag’ at the new 23.49% rate, than it would have at the older 36.94% rate.

To learn more about how tax liabilities may impact MLP C-Corp funds, explore our whitepaper on the topic.

Impact of Tax Drag on Hypothetical MLP Index Fund Returns

Definitions:

Deferred Tax Liability: Deferred tax liability is a future tax liability associated with the capital appreciation of a fund’s investments. The deferred tax liability represents an estimate of a fund’s potential tax expense if it were to recognize the unrealized gains in the portfolio.

Our MLP Quarterly Report covers recent developments driving the midstream oil & gas market and key metrics related to Master Limited Partnerships.

Our MLP Quarterly Report covers recent developments driving the midstream oil & gas market and key metrics related to Master Limited Partnerships.

The War in Iran could impair energy output and thus reshape supply chains. It also highlights the growing importance of North American energy infrastructure.

The War in Iran could impair energy output and thus reshape supply chains. It also highlights the growing importance of North American energy infrastructure.