By Robert Soza & Carlos Treviño
Is your business owned, directly or indirectly, 10 percent or more by a foreign party? Does your business own, directly or indirectly, 10 percent or more of a foreign party?
If so, your business may have the legal obligation to file reports with the Bureau of Economic Analysis (BEA) of the Department of Commerce. These reporting requirements arise as a result of the International Investment and Trade in Services Survey Act. The purpose of these reporting requirements is the collection of information on foreign investment in the United States and U.S. investment abroad for Congressional budgeting and forecasting purposes, as well as to help measure the performance of the U.S. economy. The information filed with BEA is confidential and not subject to Freedom of Information Act disclosure. Most of these reports require detailed, burdensome, financial and accounting information.
Failure to file a report may result in civil penalties from $2,500 to $25,000. If someone willfully fails to report, he/she may be subject to a sentence of imprisonment for not more than 1 year. Also, 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. Although BEA has not actively enforced these reporting requirements in the past, BEA has recently been issuing formal notices requesting certain companies to comply.
Surveys of Foreign Direct Investment in the United States
An initial report (Form BE-13) must be filed when (a) a foreign person acquires 10 percent or more of the voting securities of a U.S. entity, and the acquisition exceeds $3 million, (b) a new U.S. entity is established by a foreign person or a U.S. affiliate of a foreign person, and the projected total investment exceeds $3 million, (c) an existing U.S. affiliate of a foreign parent acquires a business that it then merges into its operations, and the total value exceeds $3 million, or (d) when an existing U.S. affiliate of a foreign parent expands its operations and the projected cost of the expansion exceeds $3 million. Enterprises that trigger these requirements are referred to as “U.S. Affiliates” under BEA rules. Even if the $3 million threshold is not met, a U.S. Affiliate must file a BE-13 Claim for Exemption. Initial reports (BE-13) must be filed no later than 45 days after the date of the transactions described above, or when contacted by BEA.
Additionally, each U.S. Affiliate must file a mandatory benchmark (Form BE-12), which is conducted every 5 years. The most recent benchmark was conducted for fiscal years 2007-2012, and this reporting has now closed. The next benchmark survey will be conducted for fiscal years 2013-2017, which will be due no later May of 2018. This form is much broader than the BE-13 and requests financial information going back 5 years. This form, like the Form BE-13, must be filed whether or not the U.S. Affiliate is contacted by BEA. All U.S. Affiliates must file a BE-12 regardless of the value of their assets, sales, gross operating revenues, or net income. If the foreign person owns less than 10% of the voting ownership interest in the U.S. Affiliate, then a Claim for Not Filing must be filed.
Once the BE-13/12 filing is made, BEA may contact the U.S. Affiliate and require additional filings. These may include quarterly (Form BE-577) or annual (Form BE-15) filings, and these requirements are only triggered if there is a specific request by BEA. Once contacted by BEA about such additional filings, these may become an ongoing requirement.
Special rules apply for filing consolidated reports for related U.S. Affiliates, as well as for banks, estates, trusts, insurance companies, farms, joint ventures and partnerships and foreign ownership of improved and unimproved real estate.
Surveys of U.S. Direct Investment Abroad
U.S. owners of a Foreign Affiliate, called U.S. Reporters, must file a benchmark survey (Form BE-10) which is also conducted every 5 years. The most recent benchmark was conducted for the fiscal years 2009- 2014. BEA is still accepting BE-10 filings for the 2009-2014 time period. The next benchmark survey will be conducted for the fiscal years 2015-2019, which will be due in May of 2020. The benchmark report filing (Form BE–10) is mandatory, whether or not the U.S. owner of a Foreign Affiliate is contacted by the BEA. There are several sub-forms depending on the amount of the total assets, sales, gross operating revenues, or net income of the Foreign Affiliate.
All other BEA filings for U.S. Reporters are triggered by a formal request by BEA. These filings include a quarterly report (Form BE-577) and an annual report (Form BE-11). Even if the requirements for substantive filings are not met, then a Claim for Exemption must be filed.
Navigating whether a transaction triggers BEA reporting and the type of form that needs to be filed requires a close reading of these regulatory requirements. The International Practice Group at Jackson Walker can assist you in complying with these reporting requirements. For more information on this eAlert, please contact Robert Soza or Carlos Treviño.
