Offices; Multibranch Parties - ISDA Provision: Difference between revisions

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Offices; Multibranch Parties - ISDA Provision (view source)

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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<ref>I know, I know. It was a joke.</ref> 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.
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<ref>I know, I know. It was a joke.</ref> 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.


Quoth, elegantly, a wise man (now departed):
It is basically a [[withholding tax]] [[gross-up]] risk.  If [[withholding tax]] arises on a payment made through your office in Tel Aviv, and the counterparty hasn’t provided evidence of an exemption from withholding, it may argue that we have to [[gross-up]] the payment because we did not disclose that we would make payments from Tel Aviv and had we, they would have proved their exemption.  So failing to disclose that ILS payments will originate from Israel, may be a material [[misrepresentation]] by omission.


:“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.”
Therefore, a double-jeopardy: counterparties may refuse to make the necessary {{isdaprov|Payee Tax Representation}} because they didn’t think it would be needed. So, no {{isdaprov|Payee Tax Representation}} + no [[Multibranch ISDA]] election = potential [[withholding tax]] [[gross up]] or a possible {{isdaprov|Misrepresentation}} {{isdaprov|Event of Default}}.


:“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}}”.
Now you could disclose the branch in a {{isdaprov|Confirmation}} (but good luck remembering to do that, and you may not have one in an electronically booked {{isdaprov|Transaction}}), or you could inject more detailed [[representation]]s in [[Part 5 - ISDA Provision|Part 5]] — but none is as simple as putting “Tel Aviv” in the [[Multibranch ISDA|Multibranch]] election.
 
:“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”


===Must you complete [[onboarding]] in each jurisdiction though?===
===Must you complete [[onboarding]] in each jurisdiction though?===
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