ISDA 2012 FATCA Protocol

Open from August 15, 2012

The ISDA 2012 FATCA Protocol (the “Protocol”) offers market participants an efficient way to amend the ISDA Master Agreement tax provisions to address the potential effects on derivatives transactions of the Foreign Account Tax Compliance Act provisions of the Hiring Incentives to Restore Employment Act of March 2010 (“FATCA”). 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 language 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.

Please refer to the “Frequently Asked Questions” below for more information on the Protocol’s substance.

The Protocol is open to ISDA members and non-members.  Parties will pay a one-time fee of $500 to ISDA to adhere to the Protocol.  There is no cut-off date to this Protocol.  ISDA does, however, reserve the right to designate a cut-off date by giving 30 days’ notice on this site.