Tax Event Upon Merger - ISDA Provision

2002 ISDA Master Agreement A Jolly Contrarian owner’s manual™ Go premium Overview — Summary — Premium — See also — Wikitext Crosscheck: →’87 equivalent →’92 equivalent →’02 equivalent Tax Event Upon Merger in a Nutshell™ The JC’s Nutshell™ summary of this term has moved uptown to the subscription-only ninja tier. For the cost of ½ a weekly 🍺 you can get it here. Sign up at Substack. You can even ask questions! Ask about it here. Original text 5(b)(iv) Tax Event Upon Merger. The party (the “Burdened Party”) on the next succeeding Scheduled Settlement Date will either (1) be required to pay an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 9(h)) or (2) receive a payment from which an amount has been deducted or withheld for or on account of any Tax in respect of which the other party is not required to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a party consolidating or amalgamating with, or merging with or into, or transferring all or substantially all its assets (or any substantial part of the assets comprising the business conducted by it as of the date of this Master Agreement) to, or reorganising, reincorporating or reconstituting into or as, another entity (which will be the Affected Party) where such action does not constitute a Merger Without Assumption; See ISDA Comparison for a comparison between the 1992 ISDA and the 2002 ISDA. The Varieties of ISDA Experience Subject 2002 (wikitext) 1992 (wikitext) 1987 (wikitext) Preamble Pre Pre Pre Interpretation 1 1 1 Obligns/Payment 2 2 2 Representations 3 3 3 Agreements 4 4 4 EODs & Term Events 5 Events of Default: FTPD • Breach • CSD • Misrep • DUST • Cross Default • Bankruptcy • MWA Termination Events: Illegality • FM • Tax Event • TEUM • CEUM • ATE 5 Events of Default: FTPD • Breach • CSD • Misrep • DUST • Cross Default • Bankruptcy • MWA Termination Events: Illegality • Tax Event • TEUM • CEUM • ATE 5 Events of Default: FTPD • Breach • CSD • Misrep • DUSS • Cross Default • Bankruptcy • MWA Termination Events: Illegality • Tax Event • TEUM • CEUM Early Termination 6 Early Termination: ET right on EOD • ET right on TE • Effect of Designation • Calculations; Payment Date • Payments on ET • Set-off 6 Early Termination: ET right on EOD • ET right on TE • Effect of Designation • Calculations • Payments on ET • Set-off 6 Early Termination: ET right on EOD • ET right on TE • Effect of Designation • Calculations • Payments on ET Transfer 7 7 7 Contractual Currency 8 8 8 Miscellaneous 9 9 9 Offices; Multibranch Parties 10 10 10 Expenses 11 11 11 Notices 12 12 12 Governing Law 13 13 13 Definitions 14 14 14 Schedule Schedule Schedule Schedule Termination Provisions Part 1 Part 1 Part 1 Tax Representations Part 2 Part 2 Part 2 Documents for Delivery Part 3 Part 3 Part 3 Miscellaneous Part 4 Part 4 Part 4 Other Provisions Part 5 Part 5 Part 5 Resources and Navigation Index: Click ᐅ to expand: ISDA

Comparisons

Redlines

• 1987 ⇒ 1992: Redline of the ’92 vs. the ’87: comparison (and in reverse)
• 1992 ⇒ 2002: Redline of the ’02 vs. the ’92: comparison (and in reverse)
• 1987 ⇒ 2002: Redline of the ’92 vs. the ’87: comparison (and in reverse)

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Discussion

Tax Event Upon Merger: Note the missing “indemnifiable” from the fifth line of the 2002 ISDA version and the expanded description of “merger events” towards the end of the clause. And the renumbering as a result of the Force Majeure Event clause in the 2002 ISDA.

Basics

This is you can imagine, a red letter day for ISDA’s crack drafting squad™ who quite outdid itself in the complicated permutations for how to terminate an ISDA Master Agreement should there be a Tax Event or a Tax Event Upon Merger. Things kick off in Section 6(b)(ii) and it really just gets better from there.

So, Tax Event Upon Merger considers the scenario where the coming together of two entites — we assume they hail from different jurisdictions or at least have different practical tax residences — has an unfortunate effect on the tax status of payments due by the merged entity under an existing Transaction.

It introduces a new and unique concept — the “Burdened Party”, being the one who gets slugged with the tax — and who may or may not be the “Affected Party” — in this case the one subject to the merger.

Premium content Here the free bit runs out. Subscribers click 👉 here. New readers sign up 👉 here and, for ½ a weekly 🍺 go full ninja about all these juicy topics👇 JC’s “nutshell” summary of the clause Background reading and long-form essays “Burdened” Party? Is that different from an Affected Party?

See also

• Deduction or Withholding for Tax
• Corporate action
• Extraordinary Event in the 2002 ISDA Equity Derivatives Definitions