U.S. Companies Nearing Deadline to Report on Direct Investment Holdings Abroad

The U.S. Department of Commerce’s Bureau of Economic Analysis (“BEA”) collects statistics related to U.S. international investment and trade in services. This alert summarizes a current BEA reporting requirement related to U.S. investment abroad and key BEA reporting requirements related to foreign direct investment in the United States.^[1]

These requirements are independent of filings with and proceedings before the Committee on Foreign Investment in the United States (“CFIUS”).

Key Points

U.S. Investments Abroad: By as early as May 29, 2020, U.S. companies with 10%-or-more voting interests in one or more foreign affiliates are to disclose information about their investments in response to a BEA benchmark survey of U.S. direct investment abroad.

Non-U.S. Acquisitions of or Investments in U.S. Companies: A U.S. entity generally is to make a disclosure to BEA within 45 days of a non-U.S. person’s direct or indirect acquisition of a 10%-or-more voting interest in the U.S. company. The U.S. entity may subsequently be required to submit additional disclosure reports to BEA as long as the non-U.S. interest in the U.S. entity continues.

Mandatory Reporting for Benchmark Survey of U.S. Direct Investment Abroad (Form BE-10)

A current BEA benchmark survey calls for reporting by, depending on the circumstances, May 29, 2020 or June 30, 2020 by U.S. parties on their holdings abroad. The requirement generally applies to U.S. parties – persons that are resident in the United States or subject to the jurisdiction of the United States – that had a 10%-or-greater voting interest in a non-U.S. business enterprise (“foreign affiliate”) at the end of their fiscal years during calendar 2019. Parties that are required to report but are not able to file by the applicable deadline should consider requesting an extension from BEA or at least notifying BEA that they plan to file late.

This is the latest BEA investment-abroad survey, which is conducted every five years. The current benchmark survey covers reporting parties’ fiscal years ending in 2019. Benchmark survey reports on Form BE-10 are due on May 29, 2020 for U.S. reporters with fewer than 50 foreign affiliates and by June 30, 2020 for U.S. reporters with 50 or more foreign affiliates. There are no filing fees associated with the submissions. A response is required from entities subject to the reporting requirements of the BE-10, whether or not they are contacted by BEA.

A U.S. individual who owns a U.S. entity – that, in turn, had an interest in one or more foreign affiliate(s) in fiscal year ending in 2019 – is not required to file the BE-10 survey in addition to the reporting U.S. entity. But any direct financial transactions or positions by the individual with the foreign affiliate(s) must be included in the U.S. reporter’s submission.

There are four BE-10 Forms: A U.S. reporter is to file Form BE-10A for itself and, generally depending on certain circumstances, a separate Form BE-10B, Form BE-15C and/or Form BE-10D for each foreign affiliate. If doing so is not possible, the U.S. reporter may consolidate foreign affiliates in the same country when the affiliates are in the same detailed BEA industry or when the affiliates are integral parts of the same business operation.

There is also a BE-10 Claim for Not Filing that must be provided for response by: (i) persons that were contacted by BEA but do not meet the requirements for filing the BE-10 survey; or (ii) U.S. reporters that have been contacted by BEA concerning their reporting status for foreign affiliates that are no longer subject to the reporting requirements of the BE-10 survey. Certain foreign affiliates that are private funds are exempt from the BE-10 survey, and a U.S. reporter is not required to file a BE-10 form for that affiliate except to indicate exemption from the survey if contacted by BEA if:

• The foreign affiliate is a private fund;
• The private fund foreign affiliate does not own, directly or indirectly through another business enterprise, an “operating company” – i.e., a business enterprise that is not a private fund or a holding company – in which the consolidated U.S. reporter owns at least 10% of the voting interest; and
• If the U.S. reporter owns the private fund indirectly (through one or more other business enterprises), there are no “operating companies” between the consolidated U.S. reporter and the indirectly owned foreign private fund.

Mandatory Reporting Regarding Foreign Direct Investment in the United States

1. Party That Has Reporting Obligation – General

   All “U.S. affiliates” – U.S. business enterprises in which a “foreign person”^[2] owns directly and/or indirectly a 10%-or-more voting interest (or the equivalent) – are subject to the BEA reporting requirements. Real estate is generally treated as being a “business enterprise.”

   Calculation of “voting interest” for purposes of this BEA filing is not determined using a “fully diluted” calculation (i.e., the U.S. affiliate does not count any stock options, warrants or notes outstanding to arrive at the ownership determination.) To arrive at the 10%-or-more determination, the denominator should include all voting stock held by all of the U.S. affiliate’s stockholders or equity holders (e.g., all common and preferred outstanding), and the numerator should include the number of voting securities held by the foreign person in question (including all members of the “associated group” of the foreign person). An associated group means two or more persons who, by the appearance of their actions, by agreement, or by an understanding, exercise their voting privileges in a concerted manner to influence the management of a business enterprise. The following may be deemed to be associated groups: (1) members of the same family; (2) a business enterprise and one or more of its officers or directors; (3) members of a syndicate or joint venture; and (4) a corporation and its domestic subsidiaries.

2. U.S. Private Fund Investing
   
   A U.S. private fund is normally required to submit disclosure reports to the BEA if a foreign investor (i) owns 10% or more of the voting interest of the U.S. private fund and (ii) indirectly owns – through the private fund – 10% or more of the voting interest of a U.S. business enterprise that is an operating company.^[3] Furthermore, the fund’s subsequent investment in an operating U.S. business enterprise can give rise to another reporting requirement if the foreign investor that holds 10% or more of the voting interest of the fund indirectly comes to own – through the fund – 10% or more of the voting interest of the U.S. operating company. If, as is commonly the case, the foreign investor invests through non-voting fund limited partnership interests, there would not be a BEA reporting requirement by virtue of the foreign investor’s participation.

3. Required Filings

   In general, as of May 2020, a nonexempt U.S. affiliate is to make only transaction-specific filings with the BEA, reporting on “new investment” in a U.S. operation, as summarized below. Once again, there are no fees associated with these filings. Additional filings may be required of entities that are contacted by BEA, as summarized below.

   1. Report of New Foreign Direct Investment in the United States (Form BE-13)

      Any U.S. business enterprise, except for certain private funds, is required to file a Form BE-13 if (1) a foreign direct investment in the United States relationship is created or (2) an existing U.S. affiliate of a foreign investor with 10% or more voting interest establishes a new U.S. legal entity, expands its U.S. operations, or acquires a U.S. business enterprise. Foreign direct investment is defined as the ownership or control, directly or indirectly, by one foreign person of 10% or more of the voting securities of an incorporated U.S. business enterprise, or an equivalent interest of an unincorporated U.S. business enterprise, including a branch. This requirement is transaction specific. Notably, the method of acquisition (i.e., public vs. private sale) is irrelevant for purposes of BEA reporting requirements. All entities, regardless of whether they have been contacted by BEA, need to submit reports on Form BE-13 if they have engaged in a transaction that triggers the reporting requirements.

      The Form BE-13 is due no later than 45 days after the acquisition is completed, the new legal entity is established, or the expansion is begun.^[4]

      There are transaction-specific BE-13 forms that must be submitted to BEA, depending on the type of transaction that occurred (acquisition of voting interest, establishment of a new legal entity or expanding of operations by an existing U.S. affiliate). There is also a Form BE-13 Claim for Exemption that must be filed if a U.S. business enterprise (1) was contacted by BEA but does not meet the requirements for filing BE-13 forms; or (2) whether or not contacted by BEA, met all requirements for filing on BE-13 forms except the $3 million reporting threshold.

   2. Benchmark Survey of Foreign Direct Investment in the United States (Form BE-12)

      The BE-12 benchmark survey is BEA’s most comprehensive survey of foreign direct investment in the United States. The benchmark survey is conducted once every five years. The current benchmark survey covers the year 2017. The next benchmark survey will cover the year 2022. Benchmark survey reports on Form BE-12 are due on May 31 of the year following the reporting year. A response is required from entities subject to the reporting requirements of the BE-12 contained in the regulations,^[5] whether or not they are contacted by BEA.

   3. Other Reports

      BEA may request that the U.S. affiliates submits additional filings, such as quarterly or annual reports. There may be exemptions from filing available. Only entities contacted individually by BEA will be required to submit additional quarterly and/or annual surveys. Entities not contacted by BEA have no such reporting responsibilities.

4. Penalties for Noncompliance

   For reporting noncompliance, there are civil penalties prescribed by statute for noncompliance of not less than $2,500 and not more than $25,000, and injunctive relief commanding such person to comply, or both. The civil penalties are adjusted annually for inflation, making current potential penalties between $4,735 and $48,192. In addition, for willful noncompliance, there are statutory criminal penalties – a fine of not more than $10,000 and, for individuals, potential imprisonment for not more than one year, or both. Any officer, director, employee or agent of any corporation who knowingly participates in such violations, upon conviction, may be punished by a like fine, imprisonment or both.

5. Confidentiality

   BEA filings are confidential and may be used only for analytical or statistical purposes or for a proceeding for failure to furnish the information. Without the U.S. company’s prior written permission, the information filed in any of the reports described above may not be presented in a manner that allows it to be individually identified. The reports described above cannot be used for purposes of taxation, investigation or regulation.

^[1] There are also BEA reporting requirements for financial services transactions between U.S. financial-services providers and foreign persons, transactions in selected services and intellectual property with foreign persons and insurance transactions by U.S. insurance companies with foreign persons, outside the scope of this alert.

^[2] "Foreign person” means any person resident outside the United States or subject to the jurisdiction of a country other than the United States. “Person” is defined broadly as any individual, branch, partnership, associated group, association, estate, trust, corporation or other organization (whether or not organized under the laws of any state in the United States) and any government (including a foreign government, the United States government, a state or local government and any agency, corporation, financial institution, or other entity or instrumentality thereof, including a government-sponsored agency).

^[3] The foreign investment in a U.S. private fund otherwise exempt from BEA filing may be required to be reported on Treasury International Capital (TIC) surveys.

^[4] Due to the COVID-19 outbreak, BEA suggests filing using eFile system or fax. Extensions may be available if needed. Estimates can be provided if necessary, given certain data may be unavailable or access to it may be limited at this time.

^[5] For current benchmark survey for 2017, U.S. companies with a 10%-or-more foreign ownership by fiscal years ending in 2017 are required to file.