Liability (for withholding) - ISDA Provision: Difference between revisions

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#redirect[[Deduction or Withholding for Tax - ISDA Provision]]
It is hard to peer into the fevered mind of an [[ISDA ninja]] who came up with this provision to work out just what it is meant to do, and why.
 
The best guess we’ve seen comes from our old friend, the tiresome [[FT book about derivatives]], whose learned author contends that it addresses the time where a {{isdaprov|Payer}} makes a payment gross, relying in [[good faith]] on a {{isdaprov|Payee Tax Representation}} that the {{isdaprov|Payee}} is entitled to receive gross, only to then find that the {{isdaprov|Tax}}ing authority in question requires the {{isdaprov|Payer}} to make that payment net, and account to it for the {{isdaprov|Tax}}, after all.  In this case the {{isdaprov|Payer}} can require the {{isdaprov|Payee}} to [[indemnify]] it for the payment, interest and penalties.
 
This seems a stretch (though probably one they cribbed from [[2002 ISDA User Guide]]<ref>the [[2002 ISDA User Guide]] says “... no [[gross-up]] is required if the payee has made a {{isdaprov|Payee Tax Representation}} that was false when made or later becomes false (unless it becomes false as a result of a {{isdaprov|Change in Tax Law}} or similar legal development”</ref>) — the usually fulsome<ref>Did I say fulsome? Tiresome.</ref> prose of the {{isdama}} neglects in this case to say anything about {{isdaprov|Payee Tax Representations}}, right or wrong, much less the {{isdaprov|Payer}}’s legitimate reliance on them. It seems to say if the [[Payer]], whether through blameless inadvertence or stupidity, neglects to account for a tax it was obliged to account for, the poor old Payee has to cover.
 
But on the other hand, it is hard to think of a better explanation than the one nicked from the [[2002 ISDA User Guide]]. So, go [[FT book about derivatives|Paul C. Harding]]!!!
{{sa}}
*[[Withholding tax]]
*{{isdaprov|Indemnifiable Tax}}
*That awful [[FT book about derivatives]]
{{ref}}

Latest revision as of 13:31, 26 May 2023

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