Template:Isda Combined Tax Event summ

Tax Event

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}}.

Change in Tax Law

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.

Indemnifiable Tax

Negatives, negatives, everywhere

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 the squad’s definition of {{{{{1}}}|Tax}} already contains a negative (being any tax that isn’t a {{{{{1}}}|Stamp Tax}}) and “{{{{{1}}}|Indemnifiable Tax}}” is itself often used in the negative (e.g. “a tax which is not an {{{{{1}}}|Indemnifiable Tax}}”) — or even double negative (e.g. “other than a tax which is not an {{{{{1}}}|Indemnifiable Tax}}”) in the body of the ISDA Master Agreement. That makes it a sextuple negative. Beat that ISLA.

Now: as we know, HAL 9000 is coming to a legal workspace near you and will soon deliver us from these noisome legal curlicues. The JC fed this language into the “OpenAI” text generator, and asked for a summary that a second grader (in old money, an eight-year-old) could understand and, well, the outcome is impressive:

{{{{{1}}}|Indemnifiable Tax}} is a kind of tax that is different from other taxes. It is a tax that is only imposed when someone is connected to the country or state that imposes the tax. This connection could be because the person is from the country, does business there, or has gotten money from there.