ISDA® Publishes 2012 FATCA Protocol for Amending Swap Documents | Practical Law

ISDA® Publishes 2012 FATCA Protocol for Amending Swap Documents | Practical Law

ISDA published the ISDA 2012 FATCA Protocol which offers market participants a way to amend their ISDA Master Agreements to address the effects of the Foreign Account Tax Compliance Act (FATCA), which may require withholding tax on payments under derivatives transactions.

ISDA® Publishes 2012 FATCA Protocol for Amending Swap Documents

Practical Law Legal Update 7-520-9996 (Approx. 4 pages)

ISDA® Publishes 2012 FATCA Protocol for Amending Swap Documents

by PLC Finance
Published on 23 Aug 2012 • International, USA (National/Federal)
ISDA published the ISDA 2012 FATCA Protocol which offers market participants a way to amend their ISDA Master Agreements to address the effects of the Foreign Account Tax Compliance Act (FATCA), which may require withholding tax on payments under derivatives transactions.
On August 15, 2012, ISDA® published the ISDA 2012 FATCA Protocol (Protocol), which enables parties to amend their ISDA Master Agreements (ISDA Master) to address the potential effects of the Foreign Account Tax Compliance Act (FATCA) withholding tax on payments under derivatives transactions. The Protocol:
  • Carves out the FATCA withholding tax from the payer tax representations that parties to the ISDA Master must make under Section 3(e) of the ISDA Master Agreement and Part 2(a) of the ISDA Schedule.
  • Places the burden of the FATCA withholding tax on the recipient of payments by specifically carving out the FATCA withholding tax from the definition of "Indemnifiable Tax" in the ISDA Master.
Before the Protocol "Indemnifiable Tax" was defined in Section 14 of the ISDA Master as any tax other than a tax imposed due to a connection between the relevant taxing authority and the payee. The payer is obliged to gross up payments made under the ISDA Master for any Indemnifiable Tax, under Section 2(d)(i)(4) of the ISDA Master, unless the recipient of a payment breaches its tax representations or tax-form delivery requirements under the ISDA Master or ISDA Schedule.
The rationale for specifically carving the FATCA withholding tax out of the definition of Indemnifiable Tax and from the payer tax representations is that the recipient of a payment is the sole party that has the ability to comply with FATCA rules to avoid the FATCA withholding tax and should therefore be the party that bears the burden of any potential FATCA withholding tax.
The Protocol was opened for adherence to both ISDA members and non-members on August 15, 2012. To adhere to the Protocol, parties must send a signed adherence letter along with a payment of $500 into the Protocol Management system and will then receive an e-mail confirmation from ISDA after approval and acceptance. Currently there is no cut-off date for the Protocol, however, ISDA reserves the right to designate a cut-off date by giving 30 days' notice on the ISDA website.
ISDA has published a form of adherence letter, form of revocation notice as well as FAQs to accompany the Protocol. To learn more about the Protocol, see ISDA's FAQs. The full complement of Protocol information and instructions can be found at:
A form of adherence letter and a form or revocation notice included in the Protocol Text can be found on the ISDA's Open Protocol page.
ISDA also published a market education note as a resource for more information on FATCA and its effect on derivatives transactions, which is available on ISDA's FATCA page.
For information on ISDA documentation, see Practice Notes, ISDA Documents: Overview (US) and ISDA documents: overview (UK).
For more information on FATCA, see:
"ISDA" is a registered trademark of the International Swaps and Derivatives Association, Inc. (ISDA). ISDA is not a sponsor of Practical Law and had no part in the development of this resource.