2018 Global Master Securities Lending Agreement (Pledge Version)
A Jolly Contrarian owner’s manual
Clause 12 in a Nutshell™
Use at your own risk, campers!
Clause 12 in full
12.1 Withholding, gross-up and provision of information: All payments under this Agreement shall be made without any deduction or withholding for or on account of any Tax unless such deduction or withholding is required by any Applicable Law.
12.2 Except as otherwise agreed, if the paying Party is so required to deduct or withhold, then that Party (Payer) shall:
- 12.2(a) promptly notify the other Party (Recipient) of such requirement;
- 12.2(b) pay or otherwise account for the full amount required to be deducted or withheld to the relevant authority;
- 12.2(c) upon written demand of Recipient, forward to Recipient documentation reasonably acceptable to Recipient, evidencing such payment to such authorities; and
- 12.2(d) pay to Recipient, in addition to the payment to which Recipient is otherwise entitled under this Agreement, such additional amount as is necessary to ensure that the amount actually received by Recipient (after taking account of such withholding or deduction) will equal the amount Recipient would have received had no such deduction or withholding been required; provided Payer will not be required to pay any additional amount to Recipient under this sub- paragraph (d) to the extent it would not be required to be paid but for the failure by Recipient to comply with or perform any obligation under paragraph 12.3.
12.3 Each Party agrees that it will upon written demand of the other Party deliver to such other Party (or to any government or other taxing authority as such other Party directs), any form or document and provide such other cooperation or assistance as may (in either case) reasonably be required in order to allow such other Party to make a payment under this Agreement without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a reduced rate (so long as the completion, execution or submission of such form or document, or the provision of such cooperation or assistance, would not materially prejudice the legal or commercial position of the Party in receipt of such demand). Any such form or document shall be accurate and completed in a manner reasonably satisfactory to such other Party and shall be executed and delivered with any reasonably required certification by such date as is agreed between the Parties or, failing such agreement, as soon as reasonably practicable.
12.4 Stamp Tax: Unless otherwise agreed, Borrower hereby undertakes promptly to pay and account for any Stamp Tax chargeable in connection with any transaction effected pursuant to or contemplated by this Agreement (other than any Stamp Tax that would not be chargeable but for Lender's failure to comply with its obligations under this Agreement).
12.5 Borrower shall indemnify and keep indemnified Lender against any liability arising as a result of Borrower's failure to comply with its obligations under paragraph 12.4.
12.6 Sales Tax: All sums payable by one Party to another under this Agreement are exclusive of any Sales Tax chargeable on any supply to which such sums relate and an amount equal to such Sales Tax shall in each case be paid by the Party making such payment on receipt of an appropriate Sales Tax invoice.
12.7 Retrospective changes in law: Unless otherwise agreed, amounts payable by one Party to another under this Agreement shall be determined by reference to Applicable Law as at the date of the relevant payment and no adjustment shall be made to amounts paid under this Agreement as a result of:
- 12.7(a) any retrospective change in Applicable Law which is announced or enacted after the date of the relevant payment; or
- 12.7(b) any decision of a court of competent jurisdiction which is made after the date of the relevant payment (other than where such decision results from an action taken with respect to this Agreement or amounts paid or payable under this Agreement).
Related agreements and comparisons
Related agreements: Click here for the same clause in the 2010 GMSLA
Comparison: Click to compare the 2010 GMSLA and 2018 Pledge GMSLA versions of this clause.
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Content and comparisons
Sole difference between the 2010 GMSLA and 2018 Pledge GMSLA is the removal in the pledge version of the lead-in reference in 12.1(d) “other than in respect of any payment made by Lender to Borrower under paragraph 6.3...”.
This is for the sensible reason that under the pledge structure the Lender never holds the Collateral — unless there’s an enforcement event — so is never required to manufacture income on it, since the Borrower is holding it and gets the income directly.
Expect some ninja swordplay in the Schedule on the extent of the gross up in 12.2(d), especially if your counterparty has any particular warm feelings towards America. You may see all sorts of special pleadings about US Federal incomes taxes, hat-doffing to the sainted Internal Revenue Code of 1986, provisions exempting gross ups as a result of Section 871(m) and all that good stuff.
Another favourite trick is to try to harmonise with the Indemnifiable Taxes regime of the ISDA Master Agreement, by carving out a gross up obligation to the extent it is a function of the gross-up recipient’s tax status with the withholding jurisdiction:
- “such Tax would not have been imposed but for a present or former connection between the jurisdiction imposing such Tax and the Recipient (other than the mere receipt of payment from Payer or the performance of Recipient’s obligations hereunder)”
You might think this a little tiresome. I couldn’t possibly comment.
Sales Tax (12.6)
Sales Tax is defined in Paragraph 2.1 as:
Sales Tax means value added tax and any other Tax of a similar nature (including, without limitation, any sales tax of any relevant jurisdiction);
For this bear of little brain this is a little ambiguous. Does this mean the Party who suffers the Sales Tax must pay it to the taxing authority upon receipt of an invoice, or does it mean the person who doesn’t suffer the Sales Tax must gross the other Party up?
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