Page 39 - Banking Finance March 2022

ARTICLE

SPAC within the prescribed annual limits (Currently, USD Y Option to the investor to redeem the shares purchased,
250,000). As per current regime, the Indian shareholders if they disagree with the identified business
are liable to pay the taxes on their investment after de- combination.
SPACing even without having monetized their investments. Y Relatively low cost of due diligence
Depending on the mechanism adopted for de-SPACing,
Y Lower underwriting commission (5.5% as against 7%-
Indian investors may have to seek regulatory approvals at
the de-SPACing stage besides initial approval at the time of 8% in case of normal IPO)
investment. Y Experienced Senior Management

Tax implications for Indian Investors Flip side of SPAC
Tax implications on the future sale of SPAC shares/resultant Y The success of SPAC depends on the sponsor's experience
company's share shall depend on various factors such as and "know-how" and so the investor is blindly depending
on the sponsor to identify successful business and
residential status of the investor and the nature / type of
negotiate a good deal.
investor involved.
Y Twenty-four-month deadline (36 months as per IFSCA
Tax implications for resident Indian framework) imposed for making a business combination,
while protecting investors by forcing a return of their
individual is as under: investment, puts management under severe time
pressure.
Particulars Indian listed SPAC shares
shares Y Unlike investors, the sponsor is not entitled to get any
Long term capital 10% 20% of this interest back if the acquiring transaction does
gain tax rate not occur.
Short term capital 15% Slab rates Y The requirement that management must spend at least
gain tax rate (Upto 30%) 80% of the SPAC's assets on a transaction could result
in the SPAC's management overpaying for the target
Benefits of SPAC company to satisfy the condition.
Y It is considerably quicker IPO process which can be
completed within a period of 3 to 4 months Conclusion
In todays globalized business world, Global capital acts as
Y SPAC acts as a tool to raise funds for the purpose of an
an important driver of economic growth and development.
acquisition of target company
The unprecedented rise of the SPAC market is transforming
Y It is relatively easier to prepare financials and and reshaping the global capital markets. India is one of the
prospectus of SPAC due to no commercial operations in most buoyant start-up ecosystems after Silicon Valley and
company there is huge potential for foreign direct investment by
Y The approval process by SEC is comparatively less SPAC.A comprehensive SPAC framework in India will help to
cumbersome attract the global capital to meet India's development needs
and provide international issuers a globally competitive
Y There is no upper limit for raising capital
financial platform.
References:
1. http://corporatefinanceinstitute.com
2. http://www.ey.com
3. http://www.thehindubusinessline.com
4. http://livemint.com
5. Consultation paper on proposed International Financial
Services Centres Authority (Issuance and Listing of
Securities) Regulations, 2021. T

BANKING FINANCE | MARCH | 2022 | 39