How Are New Excise Taxes Levied Under the Inflation Reduction Act Likely to Impact SPACs?
As if we were not in a deep winter already in market conditions, SPACs are now facing a significant new hurdle.
This is because the recently enacted Inflation Reduction Act (IRA) included a 1% excise tax that could be levied on stock repurchases or buybacks. This applies to publicly traded companies that repurchase their stock from shareholders and goes into effect after December 31, 2022.
So, how will this excise tax included in the IRA impact SPACs?
Redemption rights are ubiquitous to nearly all SPACs. Shareholders can require the SPAC to repurchase their shares before the merger in what is known as a redemption right, essentially getting their money back.
There are two possible scenarios in which redemption rights come into play. First, they can be exercised by the shareholders themselves because they are pulling out of the transaction, or second, they can be triggered. After all, the SPAC did not find a target with which to merge.