Merger of companies through Special Purpose Acquisition Company (SPAC) route is emerging as a lucrative model for raising capital and going public globally in the Indian start-up eco-system. Though the route provides several opportunities for Indian unicorns to directly access global capital markets, the Indian tax and regulatory framework is not fully prepared to facilitate a smooth SPAC transaction. Additionally, undertaking such transactions is expected to pose innumerable tax challenges including issues related to taxability in case of outbound merger of an Indian company with a foreign company, impact on tax losses of an Indian target and other related issues subsequent to a SPAC transaction. Continuing our discussion, in this edition of Accounting and Auditing Update (AAU), we will discuss the Indian tax and regulatory landscape in the SPAC arena along with highlighting key tax hurdles associated with SPAC transactions

Equity funding is the most common method of raising funds by a start-up. Other modes of raising funds include debt, investment by angel investors, government investment funds and grants, etc. One of the common ways in which investors invests in such businesses is Compulsorily Convertible Preference Shares (CCPS). Generally, these instruments allow the investors to convert at a future date based on an agreed ratio, the conversion option that could be variable on the basis of the business performance. When the conversion options are linked to future business performances, they may allow investors to get higher number of shares in the event the performance is not in line with projections. There could be other additional features e.g., down round protection and written put options (buy-back). Accounting of such instruments is complex and requires judgement. Therefore, in our article, we will discuss key matters for accounting of CCPS under Ind AS as liability or equity while considering features like anti-dilution or buy-back rights.

Recently, the Reserve Bank of India (RBI) has issued a revised regulatory framework for Non-Banking Financial Companies (NBFCs) i.e., a Scale-Based Regulation (SBR). The SBR framework bifurcates all the NBFCs into four layers based on their size, activity, and perceived riskiness namely - NBFC - Base Layer, NBFC - Middle Layer, NBFC - Upper Layer and NBFC - Top Layer. Additionally, the Securities and Exchange Board of India (SEBI) has issued revised formats for filing of financial information by entities with listed non-convertible securities. Our regulatory updates article covers these and other important regulatory developments in India and internationally.