Tax Issues relating to Special purpose acquisition company (SPAC)

The Singapore Exchange Securities Trading Limited (SGX-ST) is the first bourse in Asia to allow the listing of special-purpose acquisition companies (SPAC).

A SPAC is a shell company formed to raise money from investors through an IPO. The SPAC is then used to acquire private companies, known as target companies, without having to go through a formal IPO process.

At the time of the IPO, SPACs typically don’t have existing business operations or specified targets. That’s why they are often called blank cheque companies. The SPAC is formed for the purpose of identifying and acquiring businesses that meet the SPAC’s investment objectives. The private target company effectively becomes a publicly traded company, generally via a merger transaction or acquisition of shares (called business combination).

This could be a typical structure:

 

Key tax issues

Businesses need to carefully consider the tax issues arising from SPAC transactions to fully reap the benefits of this investment vehicle.

The tax considerations include:

  • Country of domicile of the SPAC
  1. Identify a tax efficient location after considering where the target business or assets are located, dividend and profit taxation regime, availability of tax treaties and local tax incentives which may benefit the de-SPAC, withholding tax applicable on distributions by SPAC, etc.
  2. Applicability of Controlled Foreign Corporation rules in location of SPAC.
  • De-SPAC issues
  1. Conduct a tax due diligence of target to understand the tax profile of the target that will be inherited, price adjustment requirements, availability of tax incentives post acquisition, valuation of deferred tax assets, negotiation of tax indemnities and warranties, etc.
  2. Acquisition transaction taxes – VAT, stamp duty and/or other duties and ways to structure the acquisition/merger to be tax neutral, withholding tax on purchase price requirements (if any), etc.
  3. Pre-acquisition carve outs by seller of target – impact on acquirer (ie SPAC) and how to protect SPAC from loss of value post acquisition.
  4. Post-acquisition restructuring tax issues.
  • Tax treatment of the founder shares and warrants.
  • Tax treatment of SPAC stock options if awarded to employees of target company.
  • Exit by sponsors/management – taxability of gains and explore possibility of structuring a tax neutral exit.

SPACs are set to emerge as a powerful force in the Singapore capital market. Understanding the key tax issues and receiving the proper tax advice is paramount to success.

Mazars can help you structure the SPAC and de-SPAC tax efficiently. We have experience in structuring and leading multi country M&A projects for many years. 

In addition to tax due diligence/structuring support for listing SPACs, other areas of support that Mazars can offer are valuation, financial due diligence, M&A advisory, setting up of new entities, and compliance support.

Our experts are here to support you through the SPAC process, providing tailored solutions and expert advice to help you focus on the big picture and make the key decisions throughout the process.