Template:Isda Combined Tax Event summ

Basically, the gist is this: if the rules change after the Trade Date such that you have to gross up an {{{{{1}}}|Indemnifiable Tax}} would weren’t expecting to when you priced the trade, you have a right to get out of the trade, rather than having to ship the gross up for the remainder of the {{{{{1}}}|Transaction}}.

That said, this paragraph is a bastard to understand. Have a gander at the JC’s nutshell version (premium only, sorry) and you’ll see it is not such a bastard after all, then.

In the context of cleared swaps, you typically add a third limb, which is along the lines of:

(3) required to make a deduction from a payment under an Associated LCH Transaction where no corresponding gross up amount is required under the corresponding {{{{{1}}}|Transaction}} Payment under this {{{{{1}}}|Agreement}}.

So one mild observation here is that this definition of a “{{{{{1}}}|Change in Tax Law}}” does not specifically mention, you know, tax per se. Which at first glance is odd.

This transpires not to matter, though, seeing as {{{{{1}}}|Change in Tax Law}} appears only twice in the 2002 ISDA, and in each case the context in which it appears is very specific to tax. They are:

• Section {{{{{1}}}|2(d)}}(4)(B) (which deals with exclusions to the general requirement to gross up for {{{{{1}}}|Indemnifiable Tax}}es; and
• Section {{{{{1}}}|5(b)(iii)}} ({{{{{1}}}|Tax Event}}s), defining things that count as {{{{{1}}}|Tax Event}}s by making an {{{{{1}}}|Affected Party}} more likely to suffer an {{{{{1}}}|Indemnifiable Tax}}.

The provisions surrounding gross up and termination and Indemnifiable Taxes are some of the most (linguistically) complicated in the ISDA Master Agreement, by the way.