The subscription by Alignvest (a Cdn SPAC) for a majority interest in Trilogy (a holding LLC for New Zealand and Bolivian Opcos) will result in Alignvest being a dual resident

Alignvest, which is a Canadian TSX-listed special purpose acquisition corporation, is coming up to its 24-month deadline for applying its 2015 IPO proceeds (mostly still held in escrow) to a qualifying acquisition. Although the prospectus for its IPO said that it would target Canadian investments, it is now proposing to subscribe for what will be a 56% interest in a Washington State LLC (Trilogy) assuming that none of the shareholders of Alignvest exercise their redemption right to receive back their IPO subscription price. Essentially the only assets of Trilogy are two subsidiaries in New Zealand and Bolivia running wireless networks.

Given that the existing Trilogy shareholders will continue to hold their units in Trilogy, which will now be exchangeable into common shares of Alignvest (to be renamed Trilogy International Partners Inc. on completion of the reorganization under an Ontario Plan of Arrangement), Alignvest will be treated under the inversion rules in Code s. 7874(b) as converting to a U.S. domestic corporation immediately before the Arrangement under an “F” reorg. The results include that Alignvest will be a dual tax resident subject to U.S. tax on its worldwide taxable income (with issues as to whether the IRS would grant foreign tax credits for the Canadian tax on the same income), and that Canadian shareholders will be subject to U.S. withholding tax on their dividends (for which no Canadian foreign tax credit may be available) – and that, conversely, U.S. shareholders will be subject to Canadian withholding tax on their dividends (for which no U.S. foreign tax credit may be available).

Neal Armstrong. Summary of Alignvest Acquisition Corporation Circular under Mergers & Acquisitions – Cross-Border Acquisitions – Outbound - Subscription.