Indemnifiable Tax - ISDA Provision: Difference between revisions
Amwelladmin (talk | contribs) |
Amwelladmin (talk | contribs) No edit summary |
||
| Line 1: | Line 1: | ||
{{ | {{fullanat2|isda|Indemnifiable Tax|1992|Indemnifiable Tax|2002}} | ||
====Commentary==== | ====Commentary==== | ||
Without wishing to be overly negative, this one truly comes from the "wow" file in indefensible drafting: | Without wishing to be overly negative, this one truly comes from the "wow" file in indefensible drafting: | ||
:... ''other than'' a tax which would ''not'' be imposed ''but for''... | |||
Not only a triple negative, but since ISDAs definition of ’{{isdaprov|Tax}} already contains a negative (it excludes {{isdaprov|Stamp Tax}}) and “{{isdaprov|Indemnifiable Tax}}” is itself often used in the negative (e.g. “a tax which is {{isdaprov|not}} an {{isdaprov|Indemnifiable Tax}}”) — or even ''[[double negative]]'' (e.g. “''other than'' | Not only a triple negative, but since ISDAs definition of ’{{isdaprov|Tax}} already contains a negative (it excludes {{isdaprov|Stamp Tax}}) and “{{isdaprov|Indemnifiable Tax}}” is itself often used in the negative (e.g. “a tax which is {{isdaprov|not}} an {{isdaprov|Indemnifiable Tax}}”) — or even ''[[double negative]]'' (e.g. “''other than'' | ||
| Line 10: | Line 10: | ||
A need to know version is this: | A need to know version is this: | ||
{{nuts|ISDA|Indemnifiable Tax}} | {{nuts|ISDA|Indemnifiable Tax}} | ||
{{Withholding under ISDA}} | {{Withholding under ISDA}} | ||
Revision as of 10:31, 6 January 2017
|
ISDA Anatomy™
|
Commentary
Without wishing to be overly negative, this one truly comes from the "wow" file in indefensible drafting:
- ... other than a tax which would not be imposed but for...
Not only a triple negative, but since ISDAs definition of ’Tax already contains a negative (it excludes Stamp Tax) and “Indemnifiable Tax” is itself often used in the negative (e.g. “a tax which is not an Indemnifiable Tax”) — or even double negative (e.g. “other than a tax which is not an Indemnifiable Tax”) in the body of the ISDA Master Agreement. That makes it a sextuple negative. Quite a literary feat.
A need to know version is this:
Indemnifiable Tax in a Nutshell™ (ISDA edition)
An Indemnifiable Tax is any Tax that is not[1] a Stamp Tax that is not[2] a tax that would not[3] be imposed if there were not[4] a connection between the taxing authority’s jurisdiction and the recipient that did not[5] arise solely from the recipient having performed any part of this Agreement in that jurisdiction.
Withholding under the ISDA
TL;DR: The basic rationale is this:
- if the tax relates to the underlying instrument, rather than the {{{{{1}}}|Payer}}’s residence or tax status, the {{{{{1}}}|Payer}} does not have to gross up.
- if the tax relates to the {{{{{1}}}|Payer}}’s residence or tax status, then the Payer does have to gross up unless the {{{{{1}}}|Payee}} should have provided information to the {{{{{1}}}|Payer}} which would have entitled the {{{{{1}}}|Payer}} to avoid the tax.
- if you’ve agreed the {{{{{1}}}|FATCA Amendment}}, the {{{{{1}}}|Payer}} doesn’t have to gross up any {{{{{1}}}|FATCA Withholding Tax}}es.
The combination of the {{{{{1}}}|Payer Tax Representations}} and the {{{{{1}}}|Gross-Up}} clause of the ISDA Master Agreement has the following effect:
- Section {{{{{1}}}|3(e)}}: I promise you that I do not have to withhold on my payments to you (as long as all your {{{{{1}}}|Payee Tax Representations}} are correct and you have, under Section {{{{{1}}}|4(a)}}, given me everything I need to pay free of withholding);
- Section {{{{{1}}}|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 {{{{{1}}}|Indemnifiable Tax}}), I’ll gross you up. (You should look at the drafting of {{{{{1}}}|Indemnifiable Tax}}, by the way. It's quite a marvel). ...
- {{{{{1}}}|Gross-Up}}: Unless the tax could have been avoided if the {{{{{1}}}|Payee}} had taken made all its {{{{{1}}}|3(f)}} representations, delivered all its {{{{{1}}}|4(a)}} material, or had its {{{{{1}}}|3(f)}} representations been, like, true).
- {{{{{1}}}|Stamp Tax}} is a whole other thing.
- As is FATCA, which (as long as you’ve made your {{{{{1}}}|FATCA Amendment}} or signed up to a {{{{{1}}}|FATCA Protocol}}, provides that {{{{{1}}}|FATCA Withholding Tax}}es are excluded from the Section {{{{{1}}}|3(e)}} {{{{{1}}}|Payer Tax Representations}}, and also from the definition of {{{{{1}}}|Indemnifiable Tax}}. Meaning one doesn't have to rep, or gross up, FATCA payments.
See Also
See in particular Section 2(d) (Deduction or Withholding for Tax).