On Aug. 16, President Biden signed into law the Inflation Reduction Act of 2022, H.R. 5376, a reconciliation bill that revives parts of the tax legislation from the ill-fated Build Back Better Act as part of a larger package also addressing climate change, energy and health care, White & Case reports.
In particular, the Act establishes a new 1% excise tax on certain stock buybacks by domestic public companies. The tax has a broad reach that could unexpectedly affect a range of capital markets, SPAC and M&A transactions beyond plain vanilla stock buybacks.
The excise tax could have unexpected application to domestic-incorporated SPACs. In particular, absent guidance from Treasury providing otherwise, redemptions of public A shares in connection with a business combination would be subject to the tax even though the repurchases are pursuant to the terms of the stock and notwithstanding the fact that the redeemed shareholders might not be realizing any gain on the repurchases. The Excise Tax can also apply where shareholders opt to have their shares redeemed in connection with specified material amendments to SPAC charters to extend investment periods. Read more.
