HNIs Investing in Offshore SPACs Get I-T Dept Notices: Report
Moneylife Digital Team 09 May 2024
High net-worth Indians (HNIs) betting on the so-called blank cheque firms, a Wall Street term for special purpose acquisition companies (SPACs), are reportedly getting notices from the income-tax (I-T) department, says a report.
 
According to a report from the Economic Times (ET), the notices follow information shared by Bermuda, which like Cayman Islands, is a preferred jurisdiction for integrating SPACs. The I-T department has served notices on at least four people in the past 10 days, the report says, quoting sources.
 
Many resident Indians who bought SPAC shares have not disclosed such investments in their income tax returns (ITRs). "This is a violation. Probably, they chose not to disclose because it was unclear whether the liberalised remittance scheme (LRS) can be used to buy stake in an entity that at the point of investment, did not have any bona fide business... SPACs acquire a business or get merged only after raising money and getting listed. Now the department has the data with territories like Bermuda sharing details," Rajesh Shah, a partner in Jayantilal Thakkar and Company, told ET.
 
The data shared by Bermuda this time around was more fine-tuned, an official from the I-T department told the newspaper. "We have sieved through the data to identify the investors. Besides bank accounts, other financial information, such as investments, is also shared. Bermuda's local laws help in the formation of structures like SPACs."
 
Monitored by the Reserve Bank of India (RBI), LRS permits a resident individual to remit up to US$250,000 a year to open overseas bank accounts and buy securities and immovable properties, among other things. 
 
SPACs are established solely to raise capital through a pre-listing offering, aiming to acquire a stake in an existing, primarily unlisted, operating company. Subsequently, the target company can merge with the publicly traded SPAC, becoming a listed entity on the major stock exchange.
 
A SPAC is a shell company listed on a stock exchange for acquiring (or merging with) a private firm, thus making the private company public without going through the initial public offering (IPO) process.
 
SPACs are formed solely to raise capital by inviting investors in a pre-listing offering to acquire a stake in an existing, primarily unlisted, operating company. Later, the company can merge with the publicly traded SPAC and become a listed entity.
 
In the US, SPACs are registered with the market regulator Securities and Exchange Commission (SEC) and are considered publicly traded companies.
 
Most companies pursuing SPACs mainly use New York Stock Exchange. Other exchanges such as the Euronext Amsterdam, Singapore Exchange and Hong Kong Stock Exchange have also seen a small volume of SPAC deals.
 
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