Deduction or Withholding for Tax - ISDA Provision: Difference between revisions
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{{isdaprov|Stamp Tax}} reimbursement obligations are covered at {{isdaprov|4(e)}}, not here. | {{isdaprov|Stamp Tax}} reimbursement obligations are covered at {{isdaprov|4(e)}}, not here. | ||
==== Differences between {{1992ma}} and {{ | ==== Differences between {{1992ma}} and {{2002ma}}==== | ||
Observant, obedient scholars will notice that there are no great [https://jollycontrarian.com/index.php?title=User%3AAmwelladmin&type=revision&diff=20900&oldid=20899 differences] between the {{2002ma}} and the {{1992ma}}: | Observant, obedient scholars will notice that there are no great [https://jollycontrarian.com/index.php?title=User%3AAmwelladmin&type=revision&diff=20900&oldid=20899 differences] between the {{2002ma}} and the {{1992ma}}: | ||
[[File:2(d)(i).png|thumb|left|450px|The differences between the {{2002ma}} and the {{1992ma}}]] <br> | [[File:2(d)(i).png|thumb|left|450px|The differences between the {{2002ma}} and the {{1992ma}}]] <br> |
Revision as of 16:25, 5 April 2018
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So?
Section 2(d) does the following:
- Net obligation: if a counterparty suffers withholding it generally doesn’t have to gross up – it just remits tax to the revenue and pays net.
- Refund obligation where tax subsequently levied: if a counterparty pays gross and subsequently is levied the tax, the recipient must refund an equivalent amount to the tax.
- Indemnifiable Tax: the one exception is “Indemnifiable Tax” - this is tax arises as a result of the payer’s own status vis-à-vis the withholding jurisdiction. In that case the payer has to gross up, courtesy of a magnificent quintuple negative.
Stamp Tax covered elsewhere
Stamp Tax reimbursement obligations are covered at 4(e), not here.
Differences between 1992 ISDA and 2002 ISDA
Observant, obedient scholars will notice that there are no great differences between the 2002 ISDA and the 1992 ISDA:
Observant and less obedient scholars will remark what a pig’s ear the ISDA drafting committee made of a simple concept and, when given a once-in-a-decade opportunity to improve it in 2002, the combined intellectual might of ISDA, its members, friends, relations and their divers counsel, retinue and entourage, couldn’t.
Or didn’t.
Both are excruciating in the conveyance of a fairly simple idea, which, in a Nutshell™ is set out at the top of the panel on the right.
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.