Withholding tax

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ISDA Anatomy

incorporating our exclusive ISDA in a Nutshell™

In a Nutshell Section Indemnifiable Tax:

An Indemnifiable Tax is any Tax that is not[1] a Stamp Tax that is not[2] a tax that would not[3] be imposed if there were not[4] a connection between the taxing authority’s jurisdiction and the recipient that did not[5] arise solely from the recipient having performed any part of this Agreement in that jurisdiction.
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2002 ISDA full text of Section Indemnifiable Tax:

Indemnifiable Tax” means any Tax other than a Tax that would not be imposed in respect of a payment under this Agreement but for a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation, a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction, or being or having been organised, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such recipient or related person having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement or a Credit Support Document).
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Click here for the text of Section Indemnifiable Tax in the 1992 ISDA


Resources Wikitext | Nutshell wikitext | 1992 ISDA wikitext | 2002 vs 1992 Showdown | 2006 ISDA Definitions | 2008 ISDA | JC’s ISDA code project
Navigation Preamble | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14
Events of Default: 5(a)(i) Failure to Pay or Deliver5(a)(ii) Breach of Agreement5(a)(iii) Credit Support Default5(a)(iv) Misrepresentation5(a)(v) Default Under Specified Transaction5(a)(vi) Cross Default5(a)(vii) Bankruptcy5(a)(viii) Merger without Assumption
Termination Events: 5(b)(i) Illegality5(b)(ii) Force Majeure Event5(b)(iii) Tax Event5(b)(iv) Tax Event Upon Merger5(b)(v) Credit Event Upon Merger5(b)(vi) Additional Termination Event

Index — Click ᐅ to expand:

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A form of tax in which the payer of an amount of money (often interest payment or a dividend) is must withhold a portion of that payment and remit it to the tax authorities on the payee's behalf.

Certain kinds of tax are susceptible to withholding: taxes on interest and dividend payments, for example, as these are neatly determinative and may be clipped a pre-specified rate without any pause for thought. Other taxes are less suitable for withholding: General income tax obligations, the net levels of which depend on one's whole income over a year, for example. These can’t realistically be claimed by withholding, but that won’t stop tax attorneys avoiding non-existent doubts about the risk that some revenue authority, somewhere in the world, contrives some way of doing it.

Gross up

Wherever one finds a withholding tax — or a risk of one — one will find legal provisions compelling the payer to gross up the withheld payment (or absolving it from doing so). A gross up is meant to put the payee in the position it would have been had there been no withholding, so it gets he whole amount it initially expected. Grossing up may mean having to withhold an additional extra bit from the grossed up payment (and having to gross up that too, in an asymptotic slivers ad nauseam)

ISDA Master Agreement

The ISDA Master Agreement has all sorts of provisions about withholding, gross up and what kinds of taxes count (Indemnifiable Taxes), which includes a fantastic quintuple negative.


See also

  1. Negative 1
  2. negative 2
  3. negative 3
  4. negative 4
  5. negative 5