Delaware LLC and "Effectively Connected Income (ECI)"

[mmichi]

Hi,
This post is related to an Offshore Delaware LLC. I am making this post as I see that many people are interested in Delaware as an offshore company location and thought that this might add value to them because I have not seen any post dedicated to this topic(ECI) during my humble research.
Shout out to @Sols for pointing this out in another thread:
Need some help and advice in creating a LLC in the US


He/she made an important point about being careful about "Effectively Connected Income":

Effectively Connected Income (ECI) | Internal Revenue Service

Generally, when a foreign person engages in a trade or business in the United States, all income from sources within the United States other than certain investment income, is considered to be Effectively Connected Income (ECI).

www.irs.gov

The page states "
Generally, when a foreign person engages in a trade or business in the United States, all income from sources within the United States connected with the conduct of that trade or business is considered to be Effectively Connected Income (ECI). This applies whether or not there is any connection between the income, and the trade or business being carried on in the United States, during the tax year.
"

My question:
If the Delaware LLC only activity is trading forex/stocks/options/CFDs etc many of which might be of US origin, would the LLC be deemed as having "Effectively Connected Income"?
The page also states at the bottom:
"
NOTE: If your only U.S. business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U.S. resident broker or other agent, you are NOT engaged in a trade or business in the United States.
"


However, I would greatly appreciate the practical opinion of experienced veterans here. Has anyone opened a Delaware LLC which does only "forex/stocks/options/CFDs etc" trading and not fallen under ECI?

Thanks

 

[mmichi]

Also, as a followup "rant" of sorts, this is the risk I see with Delaware LLC, where after 10 years of you working hard and earning money, they might show up saying "look at this tiny footnote here in our tax law". Hence, you owe us a gazillion dollars.
This is as opposed to the tax havens, yes the stained BVIs, Cayman Islands etc where they cannot do this because they do not have any tax as such for an offshore company, hence no "fine print".

Please correct me if I am wrong here in my reasoning.

Thanks!

 

[erni]

ootnote here in our tax law". Hence, you owe us a gazillion dollars.

you better not trust in the USA when it comes to tax avoidance!

 

[mmichi]

you better not trust in the USA when it comes to tax avoidance!

I am not talking about tax avoidance though. I am referring to someone running a Delaware LLC and paying the proper tax which as per common perception is zero. AND THEN after 10 years USA comes back saying " "look at this tiny footnote here in our tax law". Hence, you owe us a gazillion dollars.

The point is not about tax avoidance but being upfront and clear. If Delaware wants 10% tax, fine so be it as long as they are clear and upfront about it as opposed to having details hidden in some page talking about ECI and using complex language which can be interpreted in different ways later on.