An Indian Perspective on Special Purpose Acquisition Companies, GLA-TR-001
One of the challenges which exist under the Income Tax law is that under Section 47(vi) only transfers in a scheme of amalgamation of capital assets by an amalgamating company to an amalgamated Indian company is exempted from capital gains tax. Since De-SPAC transactions have the potential to have a foreign amalgamated company, the capital gains exemption in such cases would not be available and these transactions will be treated as “transfers” and attract capital gains tax under Section 45 of the Income Tax Act, 1961.40 Similarly, Section 47(vii)(b) exempts transfers by shareholders in a scheme of amalgamation who hold shares in an amalgamating company only if the amalgamated company is an Indian company. Thus, even in such cases a shareholder will have to pay capital gains tax in a deSPAC transaction containing a foreign amalgamated company.41
Concerns under Anti-Money Laundering Law The money laundering concerns with SPAC may often be undictated and should be considered as a major regulatory concern due to its distinct and separate functioning from other companies and the traditional IPO route. Some of the major money laundering concerns of SPACs are discussed in this part. When any SPAC is in the process of formation and IPOs without having any typical checklist to assess the information upon the sponsors, independent due diligence mechanism, information upon the company for the merger or acquisition at the latter stage can be considered quite detrimental to the future of the SPAC. It can become the major cause of concern for a rise in money laundering activities since there is inadequate or incorrect disclosure of information and the firm is very likely to undertake any illegal or suspicious business activity. Apart from this, Devarsh Shah and Dharmvir Brahmbhatt, ‘Tax Implications on SPAC: To SPAC or Not to SPAC?’ (The CBCL Blog, 08 June 2021) <https://cbcl.nliu.ac.in/taxation/tax-implications-on-spac-to-spac-or-not-tospac/> accessed 03 October 2021. 41 Devarsh Shah and Dharmvir Brahmbhatt, ‘Tax Implications on SPAC: To SPAC or Not to SPAC?’ (The CBCL Blog, 08 June 2021) <https://cbcl.nliu.ac.in/taxation/tax-implications-on-spac-to-spac-or-not-tospac/> accessed 03 October 2021. 40
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