Offices; Multibranch Parties - ISDA Provision: Difference between revisions

Section {{isdaprov|10}} of the {{isdama}} allows parties to specify whether they are [[Multibranch Parties - ISDA Provision|Multibranch Parties]].  Electing “[[Multibranch Parties - ISDA Provision|Multibranch Party]]” status allows you to transact out of the named [[branch]]es of the same [[legal entity]]. Details fans will immediately note that, from the point of view of legal and corporate philosophy — surely a subject dear to every attorney’s heart — the differing [[branch]]es of a [[legal entity]] have no distinct [[legal personality]] any more than does a person’s arm or leg have different personality from {{sex|her}} head. So being a “multibranch” party seems immaterial.

Those details fans will have overlooked the strange, parallel universe of [[tax|taxation]]. Here physical presence and not [[legal personality]] is what matters. Specifying that your counterparty may trade from its offices in, for example, [[Prague]], [[Kabul]] or [[The Sudan]] may impact the [[tax]] payable on payments under the relevant transactions under the [[ISDA]]. Where both parties are multibranch parties and have numerous overseas branches, a complex multilateral analysis of all the different permutations is assured.

 

:“The risk for a counterparty is essentially a [[withholding tax]] gross-up risk.  If withholding tax arises in relation to a payment made to a counterparty through our NYK office, and the counterparty hasn’t provided us with evidence of an exemption from withholding, the counterparty may argue that we may be obliged to [[gross-up]] the payment on the basis that, but for our failure to disclose to them that payments may be made from NYK, they would have provided evidence of their exemption.  So, by failing to disclose that USD payments will originate in NYK, we make a [[misrepresentation]] by omission of something that may be material to the counterparty.”

:“So you end up in a double-jeopardy, in that counterparties may refuse to make a US {{isdaprov|Payee Tax Representation}} on the grounds that, in the absence of the disclosure that NYK is  our settlement centre, there’s nothing to convince them that payments will be made to them (as Payee) from NYK. So, no {{isdaprov|Payee Tax Representation}} (or [[W-8BEN]] form) + no multibranch election = potential withholding tax gross up by us. And/or a possible Misrepresentation {{isdaprov|Event of Default}}”.

:“Of course there are other ways to get around it:  disclosure of the branch in a Confirmation (operational risk, and of no use in electronically booked txns), or more detailed [[reps]] in Part 5 - but none is as simple or uncomplicated as simply putting “New York” in the Multibranch election”

Yes — and no. A case where the operational reality trumps the legal theory. If you have a [[Multibranch ISDA]] that lists, say, Prague, The Sudan<ref>I know, I know. It was a joke.</ref> and Wellington, do you need to [[Onboarding|onboard]] the client in each of those jurisdictions? Students of [[onboarding]] will recognise this as a collossal disincentive to adding branches willy-nilly, but that legal implication will typically depend on an operational setup in the [[broker]]’s systems without which it won’t be possible to book a trade in that jurisdiction whatever the legal docs say. So look upon the legal contract as permissive; the thing that will drive your KYC obligations and trigger the onboarding onslaught will be opening an account in your systems at a later date.