The International Swaps and Derivatives Association, Inc. recently announced the launch of the ISDA 2012 FATCA and Dodd-Frank Protocols.
ISDA 2012 FATCA Protocol
The Protocol offers market participants an efficient way to amend ISDA Master Agreement tax provisions to address the effects of FATCA, which may impose a withholding tax on payments under derivatives transactions.
The intent behind FATCA is to help the US Internal Revenue Service “combat tax evasion by US persons holding investments in offshore accounts.” FATCA imposes a 30 percent withholding tax on an expansive list of payments to non-participating foreign financial institutions and other payees that are not FATCA compliant.
The impact of the Protocol is to place the FATCA withholding tax burden on the recipient of the payment by eliminating this tax from the definition of “Indemnifiable Tax” in the ISDA Master Agreement. The rationale is that the recipient is the sole party that has the ability to avoid the withholding tax by complying with the FATCA rules, therefore, the recipient should be the party burdened with the FATCA withholding tax if it chooses to not comply.
ISDA 2012 Dodd-Frank Protocol
The Protocol is designed to allow swap market participants to simultaneously amend multiple ISDA Master Agreements for the purpose of facilitating compliance with Dodd-Frank regulatory requirements, such as External Business Conduct Rules (and other requirements as they are finalised). The Protocol consists of a series of amendments to existing documentation, as well as standardised questionnaires that must be completed by counterparties to satisfy new regulations.
ISDA envisions the possibility of multiple protocols to the extent that the finalised Dodd-Frank regulation rules may require documentation amendments.
Closing Date for Protocols
Each Protocol will be open until ISDA designates a closing date.
Future Developments
ISDA has said that it expects to conduct similar reviews for documentation changes mandated by legislative developments in other countries and regions as these develop.
For further information, please contact one of the key contacts listed above or your usual contact in our Asset Management and Investment Funds Team.
