Template:Withholding under ISDA: Difference between revisions
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===Withholding under the ISDA=== | ===Withholding under the ISDA=== | ||
'''TL;DR''': The basic rationale is that if the tax arises as a result of the underlying instrument, there's no gross up. But if it is a function of the {{isdaprov|Payer}}'s status, then it is grossed up. Unless the {{isdaprov|Payee}} should have provided information to avoid it. | |||
The combination of the {{isdaprov|Payer Tax Representations}} and the {{isdaprov|Gross-Up}} clause of the {{isdama}} has the following effect: | The combination of the {{isdaprov|Payer Tax Representations}} and the {{isdaprov|Gross-Up}} clause of the {{isdama}} has the following effect: | ||
*'''Section {{isdaprov|3(e)}}''': I promise you that I do not have to withhold on my payments to you (as long as all your {{isdaprov|Payee Tax Representations}} are correct and you have, under Section {{isdaprov|4(a)}}, given me everything I need to pay free of withholding); | *'''Section {{isdaprov|3(e)}}''': I promise you that I do not have to withhold on my payments to you (as long as all your {{isdaprov|Payee Tax Representations}} are correct and you have, under Section {{isdaprov|4(a)}}, given me everything I need to pay free of withholding); | ||
*'''Section {{isdaprov|2(d)}}''': I will not withhold on any payments to you. Unless I am required to by law. Which I kind of told you I wasn't... If I have to withhold, I'll pay the tax the authorities and give you the receipt. If I only had to withhold because of my connection to the taxing jurisdiction (that is, if the withholding is an {{isdaprov|Indemnifiable Tax}}), I'll gross you up. (You should look at the drafting of {{isdaprov|Indemnifiable Tax}}, by the way. It's quite a marvel). ... ''Unless'' the tax could have been avoided if the Payee had taken made all its 3(f) representations, delivered all its {{isdaprov|4(a)}} material, or had its {{isdaprov|3(f)}} representations been, like, ''true''). | *'''Section {{isdaprov|2(d)}}''': I will not withhold on any payments to you. Unless I am required to by law. Which I kind of told you I wasn't... If I have to withhold, I'll pay the tax the authorities and give you the receipt. If I only had to withhold because of my connection to the taxing jurisdiction (that is, if the withholding is an {{isdaprov|Indemnifiable Tax}}), I'll gross you up. (You should look at the drafting of {{isdaprov|Indemnifiable Tax}}, by the way. It's quite a marvel). ... ''Unless'' the tax could have been avoided if the Payee had taken made all its 3(f) representations, delivered all its {{isdaprov|4(a)}} material, or had its {{isdaprov|3(f)}} representations been, like, ''true''). | ||
*'''{{isdaprov|Stamp Tax}}''' is a whole other thing. | *'''{{isdaprov|Stamp Tax}}''' is a whole other thing. | ||
*As is '''{{tag|FATCA}}''' | *As is '''{{tag|FATCA}}''', which provides that {{isdaprov|FATCA Withholding Tax}}es are excluded from the Section {{isdaprov|3(e)}} {{isdaprov|Payer Tax Representations}}, and also from the definition of {{isdaprov|Indemnifiable Tax}}. Meaning one doesn't have to rep, or gross up, {{tag|FATCA}} payments. | ||
Revision as of 11:21, 12 April 2016
Withholding under the ISDA
TL;DR: The basic rationale is that if the tax arises as a result of the underlying instrument, there's no gross up. But if it is a function of the Payer's status, then it is grossed up. Unless the Payee should have provided information to avoid it.
The combination of the Payer Tax Representations and the Gross-Up clause of the ISDA Master Agreement has the following effect:
- Section 3(e): I promise you that I do not have to withhold on my payments to you (as long as all your Payee Tax Representations are correct and you have, under Section 4(a), given me everything I need to pay free of withholding);
- Section 2(d): I will not withhold on any payments to you. Unless I am required to by law. Which I kind of told you I wasn't... If I have to withhold, I'll pay the tax the authorities and give you the receipt. If I only had to withhold because of my connection to the taxing jurisdiction (that is, if the withholding is an Indemnifiable Tax), I'll gross you up. (You should look at the drafting of Indemnifiable Tax, by the way. It's quite a marvel). ... Unless the tax could have been avoided if the Payee had taken made all its 3(f) representations, delivered all its 4(a) material, or had its 3(f) representations been, like, true).
- Stamp Tax is a whole other thing.
- As is FATCA, which provides that FATCA Withholding Taxes are excluded from the Section 3(e) Payer Tax Representations, and also from the definition of Indemnifiable Tax. Meaning one doesn't have to rep, or gross up, FATCA payments.