11/19/2023 0 Comments D spac transactionStock issued by an acquiring covered corporation, such as a SPAC, is treated as not having been issued if it is issued as consideration in an “acquisitive reorganization” that is an “economically similar transaction” subject to the Excise Tax, and the target applies the “qualifying property exception” to its stock repurchase excise tax base. 5 However, where the target is a privately held company that is not subject to the Excise Tax, the Notice effectively permits the acquiring SPAC to reduce its excise tax base by the fair market value of the stock it issues as merger consideration in the de-SPAC transaction. Generally, and as described in more detail below, the limited circumstances involve SPAC stock issued in certain tax-free reorganizations with a publicly traded target that reduces the target’s own excise tax base by the fair market value of the SPAC stock issued as merger consideration. The Notice, however, does provide such an exception for stock issued by an acquiring covered corporation (including a SPAC) under limited circumstances. 4 Therefore, absent a specific exception in the Notice, a SPAC should be able to reduce the fair market value of redeemed SPAC stock by the fair market value of SPAC stock issued in the same taxable year in a de-SPAC transaction, thereby lowering (or eliminating) its Excise Tax liability. 3 The stock repurchase excise tax base generally equals the fair market value of the stock repurchased by a covered corporation during the taxable year minus (pursuant to the so-called “netting rule”) the aggregate fair market value of stock issued by the covered corporation in the same taxable year. The Notice provides that the 1% Excise Tax is imposed on the stock repurchase excise tax base of a covered corporation during a taxable year. Summary of Application of the Notice to De-SPAC Transactions This is a welcome outcome in a time when SPAC redemptions are high and PIPE investments are difficult to come by. 2 This will likely eliminate (or at least reduce) the Excise Tax that would be imposed on SPAC redemptions occurring in the same taxable year as a de-SPAC transaction. Less obvious, however, and of particular note, the Notice implicitly allows the fair market value of SPAC stock issued as consideration in the acquisition of a privately held target (as is the case in the significant majority of de-SPAC transactions) to offset any SPAC redemptions in connection with a de-SPAC transaction in the same taxable year. 1 The Excise Tax was enacted into law in the Inflation Reduction Act on Augfor an earlier discussion of the Excise Tax, please see New 1% Excise Tax on Stock Repurchases by Publicly Traded Corporations.Īlthough the Notice does not specifically reference special purpose acquisition companies (SPACs), commentators have widely discussed the impact of the Notice on SPAC liquidations and the ability to use private investment in public equity (PIPE) issuances in connection with a de-SPAC transaction to offset the excise tax base. Treasury issued Notice 2023-2 (the Notice), which provides interim guidance addressing the 1% excise tax on stock repurchases (the Excise Tax) by certain publicly traded corporations (covered corporations) under Code Section 4501. On December 27, 2022, the Internal Revenue Service and U.S.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |