Offices; Multibranch Parties - ISDA Provision: Difference between revisions

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{{isdaanat|10}}
{{manual|MI|2002|10|Section|10|medium}}
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.
 
===={{tag|Tax}}ation====
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.
 
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.
 
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}}.
 
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.
 
===Must you complete [[onboarding]] in each jurisdiction though?===
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>See footnote above.</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.
 
===={{tag|Netting}}====
While, by dint of the [[legal personality]], it wouldn’t make any difference under [[English law|English]] or [[New York law]], and really shouldn’t anywhere else, there are those jurisdictions which are not so theoretically pure in their conceptualisation of the corporate form. Your counterparty may have the misfortune to be incorporated in such a place.
 
If so, the validity of close-out [[netting]] against that entity may indeed depend on the branch from which it transacts - and indeed there is a possibility that the governing law of the jurisdiction of the branch may [[endeavour]] to intervene (particularly relevant if it has assets). Another reason, perhaps, to disapply the “[[Multibranch Party - ISDA Provision|multibranch party]]” for a counterparty incorporated in such a jurisdiction. The way to check this is at the netting opinion review sheet contains the following question:
 
:''Does the opinion confirm that close-out netting under the agreement is enforceable notwithstanding the inclusion of branches in non-netting jurisdictions? Yes/No''<br>
 
{{sa}}
*[[Onboarding]]
{{ref}}
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