The US Bureau of Economic Analysis (BEA) is an agency of the US Department of Commerce and is governed by the International Investment and Trade in Services Survey Act. The BEA conducts mandatory and voluntary surveys to collect data on foreign direct investments into the United States, US direct investments abroad, and US international services transactions.
The data collected can be viewed on the BEA website (www.bea.gov). Under the governing legislation, information provided in the surveys cannot be presented in a manner that allows the filer to be identified, and the completed surveys cannot be used for tax, investigatory, or regulatory purposes. Copies retained in the BEA's files are immune from legal process. The most recent mandatory filing is extended to June 30, 2015.
US direct investment abroad. The BEA has an annual filing requirement for a US person (a corporation, partnership, trust, non-profit entity, or individual) investing abroad and a foreign person investing in the United States. However, many practitioners became aware of the BEA filing requirements only because of a recent form BE-10 survey ("Benchmark Survey of U.S. Direct Investment Abroad") that is required every five years from a US person that has a foreign affiliate. The most recent BE-10 survey was for 2014; the form was due in March 2015, but an extension to June 30, 2015 was given for first-time filers. According to the BEA, preparing a form BE-10 is likely to take 144 hours for each survey.
Form BE-10 must be filed by any US person that has a foreign affiliate—that is, direct or indirect ownership or control of at least 10 percent of the voting stock of an incorporated foreign business enterprise, or an equivalent interest in an unincorporated foreign business enterprise, at any time during the person's 2014 fiscal year. A US person that had no FAs during its 2014 fiscal year must file a form BE-10 claim for not filing; failure to file that form carries the same penalties as a failure to file a form BE-10 for a reporting company. Filing is required even if the reporter is not contacted by the BEA. If a US individual, estate, trust, or non-profit entity owns more than 50 percent of a US business enterprise that in turn owns an FA, then the reporting person is the US business enterprise. However, if any direct financial transaction occurs between the FA and the individual, trust, or non-profit entity, that transaction must be included in the US business enterprise's report.
Other reporting required of a US investor in a foreign business enterprise includes a form BE-577 ("Quarterly Survey of U.S. Direct Investment Abroad: Direct Transactions of a U.S. Reporter with Foreign Affiliate") and a form BE-11 ("Annual Survey of U.S. Direct Investment Abroad"). A form BE-577 must be filed within 30 days of the end of the US reporter's fiscal quarter (within 45 days of the end of the final quarter). Reporting is required only if the reporter is contacted by the BEA; a certificate of exemption may then apply. Reporting is required if (1) the directly owned FA has more than $60 million (positive or negative) in total assets, annual sales or gross operating revenue (net of sales tax), or annual net income after foreign tax, or (2) the indirectly owned FA meets the $60 million threshold and has more than $1 million of intercompany debt with the US reporter.
Form BE-11 is an annual survey of financial and operating data of the US reporter and its FA. Various thresholds apply. Reporting is required if the BEA contacts the reporter; a certificate of exemption may then apply.
Foreign direct investment in the United States. A form may also have to be filed by a US business enterprise if there is foreign direct investment in the United States. The purpose of form BE-13 ("Survey of New Foreign Direct Investment in the United States") is to capture new investment transactions when a new foreign direct investment in the United States relationship is created (a minimum investment of $3 million) or when an existing US affiliate of a foreign parent establishes a new US legal entity, expands its US operations, or acquires a US business enterprise (a minimum investment of $3 million). The initial report must be filed no later than 45 days after the investment transaction. The information filed also identifies new US affiliates that meet the criteria for other required BEA filings. (A US affiliate is defined similarly to a foreign affiliate, mutatis mutandis.) The form must be filed regardless of whether the person is contacted by the BEA; if the BEA does request a filing, a claim for exemption may then apply.
Form BE-605 ("Quarterly Survey of Foreign Direct Investment in the United States: Transactions of U.S. Affiliate with Foreign Parent") must be filed to report positions and transactions between a US affiliate and its foreign parent or foreign affiliates. Form BE-605 is also required for any US affiliate that became inactive or was established, acquired, liquidated, or sold during the reporting period and meets the over $60 million (positive or negative) threshold. Quarterly reports must be filed within 30 days after the close of the fiscal quarter (45 days after the year-end.) An entity that is required to report will be contacted by the BEA; a claim for exemption may then apply. An entity is exempt if the values of the affiliate's total assets, annual sales, or gross operating revenues and annual net income (loss) were each no more than $60 million. No report is required unless the reporter is contacted by the BEA; a claim for exemption may then apply.
Form BE-15 ("Annual Survey of Foreign Direct Investment in the United States") is designed to report annual financial and operating data of US affiliates. Reporting is required only if the reporter is contacted by the BEA; a claim for exemption may then apply. The threshold for filing is an investment of at least $40 million into the United States. A one-time exemption may be filed if the foreign voting ownership (or equivalent) falls below 10 percent; if the US affiliate is fully consolidated or merged into another US affiliate; or if each of total assets, sales or gross operating revenues, and net income is no more than $40 million (positive or negative). After the initial filing, the BE-15 claim for exemption is not required annually from a US affiliate that meets the exemption criteria, unless the BEA contacts the would-be filer and the US business enterprise is exempt from filing.
Form BE-12 ("Benchmark Survey of Foreign Direct Investment in the United States") is to be completed every five years. The most recent survey covered the fiscal year ending in 2012. A response is required from reporting entities even if they are not contacted by the BEA.
The penalties for non-compliance are severe. Failure to file results in a civil penalty ranging from US$2,500 to US$25,000. Wilfully not filing carries a penalty of not more than US$10,000; an individual may face imprisonment for one year. Upon conviction, any officer, director, employee, or agent of a corporation who knowingly participates in these violations may be punished with a similar fine, imprisonment, or both.
Previously published in Canadian Tax Highlights - June 2015
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