Indemnifiable Tax - ISDA Provision

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2002 ISDA Master Agreement
A Jolly Contrarian owner’s manual™

Section Indemnifiable Tax in a Nutshell
Use at your own risk, campers!

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.
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From our machine overlords
Here is what GPT3 had to say when asked to summarise this provision:

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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.
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Full text of Section Indemnifiable Tax

Indemnifiable Tax” means any Tax other than a Tax that would not be imposed in respect of a payment under this Agreement but for a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation, a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction, or being or having been organised, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such recipient or related person having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement or a Credit Support Document).
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Resources and navigation

Resources Wikitext | Nutshell wikitext | 1992 ISDA wikitext | 2002 vs 1992 Showdown | 2006 ISDA Definitions | 2008 ISDA | JC’s ISDA code project
Navigation Preamble | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14
Events of Default: 5(a)(i) Failure to Pay or Deliver5(a)(ii) Breach of Agreement5(a)(iii) Credit Support Default5(a)(iv) Misrepresentation5(a)(v) Default Under Specified Transaction5(a)(vi) Cross Default5(a)(vii) Bankruptcy5(a)(viii) Merger without Assumption
Termination Events: 5(b)(i) Illegality5(b)(ii) Force Majeure Event5(b)(iii) Tax Event5(b)(iv) Tax Event Upon Merger5(b)(v) Credit Event Upon Merger5(b)(vi) Additional Termination Event

Index: Click to expand:

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Content and comparisons

Now you would like to think ISDA’s crack drafting squad™ could do something to improve a passage with a quintuple negative, wouldn’t you? Even, if, bloody-mindedly, to add a sixth negative, just to underline how scanty is the damn they give about the neurotic whinings of those, like the JC who hanker for more economical expression. In your face, prose stylists, such a stance might say. Actually, since I’m here, have a fricking seventh negative, punk, and brand it on your forehead so all who look upon you will know who it was who schooled you.

We can but dream, possums. We can only imagine what might have been. but no; they left the ghastly tract inviolate.

But HAL 9000 is coming. 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: see panel to right.



Withholding under the ISDA

TL;DR: The basic rationale is this:

The combination of the Payer Tax Representations and the Gross-Up clause of the ISDA Master Agreement has the following effect:

  • Section 3(e): I promise you that I do not have to withhold on my payments to you (as long as all your Payee Tax Representations are correct and you have, under Section 4(a), given me everything I need to pay free of withholding);
  • Section 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 Indemnifiable Tax), I’ll gross you up. (You should look at the drafting of Indemnifiable Tax, by the way. It's quite a marvel). ...
  • Gross-Up: Unless the tax could have been avoided if the Payee had taken made all its 3(f) representations, delivered all its 4(a) material, or had its 3(f) representations been, like, true).
  • Stamp Tax is a whole other thing.
  • As is FATCA, which (as long as you’ve made your FATCA Amendment or signed up to a FATCA Protocol, provides that FATCA Withholding Taxes are excluded from the Section 3(e) Payer Tax Representations, and also from the definition of Indemnifiable Tax. Meaning one doesn't have to rep, or gross up, FATCA payments.

General discussion

Stamp Taxes are not Indemnifiable Taxes

Stamp Taxes are not Indemnifiable Taxes. They are covered by Section 4(e) and not the general gross-up in Section 2(d). They are not covered by Payee Tax Representations.

Negatives, negatives, everywhere

Without wishing to be overly negative[6], 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 ISDA’s definition of Tax already contains a negative (being any tax that isn’t a 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. Beat that ISLA.


See also



  1. Negative 1
  2. negative 2
  3. negative 3
  4. negative 4
  5. negative 5
  6. All right, I do wish to be overly negative. It’s in my nature.