This morning the treasury department finally issued guidance around the issue of share buybacks, which has been haunting the capital markets since August when the 1% excise tax was first introduced. And in the nick of time too, since the tax goes into effect in less than week.
To be clear, the purpose of the excise tax was never about SPACs, they just got caught in its crosshairs thanks to the SPAC’s redemption feature. However, for some context around the situation, the 1% excise tax came about as part of the Inflation Reduction Bill that was passed this summer. Senator Kyrsten Sinema, in a last minute change, insisted the tax increase on carried interest for private equity be removed and instead, as a concession, the 1% excise tax on stock buybacks was put in.
On its surface, it appeared to be specifically meant for the typical share buyback you think of when corporations literally buy back their stock. However, all sorts of asset classes were caught up in it and affected such as redeemable preferreds and SPACs since a “redemption” is considered a buyback as well. There was quite a bit of confusion as to its interpretation and so, here we are today with the Treasury Department putting out some much needed guidance for how companies should proceed. However, in typical government fashion, it’s about as clear as a foggy windshield in blizzard.
Nonetheless, it appears that SPACs undergoing a “complete liquidation” will be spared the excise tax. To wit:
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