Tax Considerations in SPAC Transactions
In this edition of the Chambers Expert Focus Weil Tax Insight Series, Joseph Pari – co-chair of Weil’s tax department – and Devon Bodoh – head of Weil’s international tax practice – discuss the domestic and international tax issues facing special purpose acquisition companies (SPACs) and prospective merger targets.
Published on 17 July 2023
Key points of discussion include:
- SPAC formation and structuring considerations;
- tax issues impacting on deSPAC transactions;
- shareholder considerations;
- the fact that SPACs have faced difficulty over the past year, with fewer SPAC and deSPAC offerings; and
- domestic and international SPAC transaction issues.
Domestic SPAC Transaction Issues
“… a lot of SPACs are not able to accomplish their mandate of getting a deSPAC done within whatever the requisite time period is.”
Noteworthy points include the following:
- a relatively new 1% excise tax is imposed on a domestic publicly traded corporation if it buys back shares to the extent of the fair market value of the shares it buys back, though a “netting rule” may help mitigate this;
- the shares issued have to be by the same publicly traded corporation, and in the same tax year;
- shareholder requests for extending the life of a SPAC are common; and
- the continuity of business enterprise requirement, which stipulates that the target’s historic business needs to be continued or a certain amount of its assets need to be used in a business going forward.
International SPAC Transaction Issues
“… there are still a number of undefined tax issues, and those issues are driving the economics in transactions.”
Noteworthy issues here concern:
- formation – ie, where to locate the SPAC;
- situations where the SPAC is the acquirer; and
- the movement of SPACs offshore, and how this relates to the 1% excise tax and to the PFIC and CFC tax regimes.
Weil, Gotshal & Manges LLP
