More SPACs completed their initial public offering in 2021 than in any prior year. In 2021, approximately 613 SPACs completed their IPO within the United States alone. An increasing number of Canadian companies are being approached by U.S. and tax haven SPACs with significant US shareholders, Dorsey & Whitney write in JDSupra.
Common de-SPAC transaction structures include: (i) re-domiciling the SPAC to Canada prior to the acquisition of the Canadian company; (ii) acquiring the Canadian company utilizing an exchangeable share structure; (iii) structuring the de-SPAC transaction as an acquisition of the SPAC by the Canadian company; or (iv) forming a new Canadian holding company to acquire the SPAC and the Canadian company.
The re-domiciling of a SPAC to Canada will generally result in application of the U.S. anti-inversion tax rules unless the SPAC is organized in a non-U.S. jurisdiction. If the anti-inversion rules apply, the SPAC will continue to be classified as a U.S. domestic corporation for U.S. federal income tax purposes notwithstanding the re-domiciliation to Canada. As a result, U.S. SPACs are generally not re-domiciled to Canada.
Properly designed exchangeable share structures whereby the SPAC acquires an interest in the Canadian company and shareholders of the Canadian company receive shares exchangeable for SPAC shares can result in the deferral of taxes by shareholders of the Canadian company until they liquidate their holdings. However, the use of exchangeable share structures often adds cost, time and complexity. Read more.
