Tax Event - ISDA Provision

ISDA Anatomy™ incorporating our exclusive ISDA in a Nutshell™ Go Premium In a Nutshell™ Section 5(b)(iii): 5(b)(iii) Tax Event It will be a Termination Event when, following a change in tax law or practice after any trade date, an Affected Party is likely to have to either: (1) Gross up an Indemnifiable Tax deduction (other than for interest under Section 9(h)); or (2) receive a payment net of Tax which the Non-Affected Party is not required to gross up (other than where it is caused by the Non-Affected Party’s own omission or breach). view template 2002 ISDA full text of Section 5(b)(iii): 5(b)(iii) Tax Event. Due to (1) any action taken by a taxing authority, or brought in a court of competent jurisdiction, after a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (2) a Change in Tax Law, the party (which will be the Affected Party) will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Settlement Date (A) be required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 9(h)) or (B) receive a payment from which an amount is required to be deducted or withheld for or on account of a Tax (except in respect of interest under Section 9(h)) and no additional amount is required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or (B)); The line breaks are for comprehension and do not appear in the original view template Click here for the text of Section 5(b)(iii) in the 1992 ISDA Index: Click ᐅ to expand: ISDA Navigation The Varieties of ISDA Experience Subject 2002 (wikitext) 1992 (wikitext) 1987 (wikitext) Preamble Pre Pre Pre Interpretation 1 1 1 Obligns/Payment 2 2 2 Representations 3 3 3 Agreements 4 4 4 EODs & Term Events 5 Events of Default FTPD • Breach • CSD • Misrep • DUST • Cross Default • Bankruptcy • MWA Termination Events Illegality • Tax Event • TEUM • CEUM • ATE • 5 Events of Default FTPD • Breach • CSD • Misrep • DUST • Cross Default • Bankruptcy • MWA Termination Events Illegality • Tax Event • TEUM • CEUM • ATE • 5 Events of Default FTPD • Breach • CSD • Misrep • DUST • Cross Default • Bankruptcy • MWA Termination Events Illegality • FM • Tax Event • TEUM • CEUM • ATE • Early Termination 6 Early Termination ET right on EOD • ET right on TE • Effect of Designation • Calculations 6 Early Termination ET right on EOD • ET right on TE • Effect of Designation • Calculations • Set-off 6 Early Termination ET right on EOD • ET right on TE • Effect of Designation • Calculations • Set-off Transfer 7 7 7 Contractual Currency 8 8 8 Miscellaneous 9 9 9 Offices; Multibranch Parties 10 10 10 Expenses 11 11 11 Notices 12 12 12 Governing Law 13 13 13 Definitions 14 14 14 Schedule Schedule Schedule Schedule Termination Provisions Part 1 Part 1 Part 1 Tax Representations Part 2 Part 2 Part 2 Documents for Delivery Part 3 Part 3 Part 3 Miscellaneous Part 4 Part 4 Part 4 Other Provisions Part 5 Part 5 Part 5 Comments? Questions? Suggestions? Requests? Insults? We’d love to 📧 hear from you. Sign up for our newsletter.

Numbering Discrepancy: Note the numbering discrepancy in Section 5(b) between the 1992 ISDA and 2002 ISDA. This is caused by a new 5(b)(ii) (Force Majeure Event) in the 2002 ISDA before Tax Event, which is thus shunted from Section 5(b)(ii) (in the 1992 ISDA) to Section 5(b)(iii) (in the 2002 ISDA).

No real change from the 1992 ISDA

Note, unhelpfully, the subpara reference in the 1992 ISDA is (1) and (2) and in the 2002 ISDA is (A) and (B). Otherwise, pretty much the same:

That was worth waiting a decade for, then, wasn't it.

Note, also unhelpfully, that this paragraph is a bastard to understand. Have a gander at the JC’s nutshell version and you’ll see it is not such a bastard after all, then. In the context of CCP, you typically add a third limb, which is along the lines of

(3) required to make a deduction from a payment under an Template:Swapclearprov where no corresponding gross up amount is required under the corresponding Transaction Payment under this Agreement.

Gist

Basically the gist is this: if the rules change after the Trade Date such that you have to gross up an Indemnifiable Tax would weren't expecting to when you priced the trade, you have a right to get out of the trade, rather than having to ship the gross up for the remainder of the Transaction.