United States: Mandatory Reporting Of Foreign Direct Investments In The U.S.

Overview

The Department of Commerce's Bureau of Economic Analysis (BEA) has reinstated the mandatory reporting requirements of the BE–13, Survey of New Foreign Direct Investment in the United States, which was discontinued in 2009 due to budget restrictions.  It is expected to result in the filings of reports from approximately 1,350 U.S. affiliates of foreign companies each year.  The survey collects information on the acquisition or establishment of U.S. business enterprises by foreign investors, which was collected on the previous BE–13 survey, and information on expansions by existing U.S. affiliates of foreign companies, which was not previously collected.  The statistical data will be used to measure the amount of new foreign direct investment in the United States, assess the impact on the U.S. economy and any potential implications for national security, and based on this assessment, inform future policy decisions.

The BE-13 Survey is quite different from the Committee on Foreign Investment in the United States ("CFIUS") review process.  It is a statistical data collection exercise, not a national security review process.  BEA does not have the power to unwind or block a transaction based on information in the BE-13 Survey response.  However, CFIUS has the authority to request BEA to provide a report with the best available information on the extent of foreign direct investment in an industry.  When requested, BEA must provide the report to CFIUS within 14 days of the request.

Legal Background

The BE-13 Survey is conducted pursuant to the International Investment and Trade in Services Survey Act (the Act).  Section 4(a) of the Act provides, inter alia, that the President shall, to the extent he deems necessary and feasible:

(1) conduct a regular data collection program to secure current information on international capital flows and information related to international investment and trade in services, including (but    not limited to) such information as may be necessary for computing and analyzing the United States balance of payments, employment and taxes of United States parent and affiliates, and the international investment and trade in services position of the United States;

(2) conduct such studies and surveys as may be necessary to prepare reports in a timely manner on specific aspects of international investment and trade in services which may have significant implications for the economic welfare and national security of the United States.

In Section 3 of Executive Order 11961, the President delegated the responsibility for performing functions under the Act concerning direct investment to the Secretary of Commerce, who re-delegated the responsibility to BEA.  By rule effective in September 2014 (79 FR 47573), BEA amended regulations introduced in 2012 which established guidelines for collecting data on international trade in services and direct investment through BE-13.

Reportable Investments

Foreign direct investment in the United States is defined as the ownership or control, directly or indirectly, by one foreign person (foreign parent) of 10 percent 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.  Depending on the type of investment transaction, U.S. affiliates must report their information on one of six forms— BE–13A, BE–13B, BE–13C, BE–13D, BE– 13E, or BE–13 Claim for Exemption. Previously, one form was used to collect information on all transaction types.

The reporting requirements for the six forms are:

a. Form BE–13A—Report for a U.S. business enterprise when a foreign entity acquires a voting interest (directly, or indirectly through an existing U.S. affiliate) in that enterprise, segment, or operating unit and (i) the total cost of the acquisition is greater than $3 million, (ii) the U.S. business enterprise will operate as a separate legal entity, and (iii) by this acquisition, at least 10 percent of the voting interest in the acquired entity is now held (directly or indirectly) by the foreign entity.

b. Form BE–13B—Report for a U.S. business enterprise when a foreign entity, or an existing U.S. affiliate of a foreign entity, establishes a new legal entity in the United States and (i) the projected total cost to establish the new legal entity is greater than $3 million, and (ii) the foreign entity owns 10 percent or more of the new business enterprise's voting interest (directly or indirectly).

c. Form BE–13C—Report for an existing U.S. affiliate of a foreign parent when it acquires a U.S. business enterprise or segment that it then merges into its operations and the total cost to acquire the business enterprise is greater than $3 million.

d. Form BE–13D—Report for an existing U.S. affiliate of a foreign parent when it expands its operations to include a new facility where business is conducted and the projected total cost of the expansion is greater than $3 million.

e. Form BE–13E—Report for a U.S. business enterprise that previously filed a BE–13B or BE–13D indicating that the established or expanded entity is still under construction.

f. Form BE–13 Claim for Exemption— Report for a U.S. business enterprise that (i) was contacted by BEA but does not meet the requirements for filing forms BE–13A, BE–13B, BE–13C, or BE– 13D, or (ii) whether or not contacted by BEA, met all requirements for filing on Forms BE–13A, BE–13B, BE–13C, or BE–13D except the $3 million reporting threshold.

In addition to the changes in the reporting criteria and form design, BEA added and deleted some data items from the information collected on the previous BE–13 survey. The following items have been added to the survey:

  1. Equity and debt components of the foreign parent funding;
  2. A question asking if the new U.S. operation will have research and development activities;
  3. A question asking if the new operation is under construction;
  4. Employment projections;
  5. Actual and projected construction expenditures by type and by year.

BEA is eliminating the following items from the new BE–13 survey: investment incentives, sales by industry (total sales and the overall industry code for the new operation is still collected), equity ownership interest (voting interest is still collected), address of the foreign parent (country is still collected), and acres of U.S. land owned.

Mandatory Reporting

BEA has recently started to notify respondents of their obligations to file, but unlike other BEA Surveys conducted pursuant to the Act, persons subject to BE-13's reporting requirement are required to respond whether or not they are contacted by BEA.  Reporting is required retroactively back to January 1, 2014.  Going forward, BEA has stated that it will mail notifications to respondents as soon as it becomes aware of a potential investment or when annual cost updates are needed.  The forms will be due no later than 45 days after the acquisition is completed, the new legal entity is established, the expansion is begun, or the cost update is requested.

Civil and criminal penalties may result from a failure to file the BE-13 in a timely manner.   A failure to provide the necessary information can lead to a civil fine up to $25,000 and a court order requiring the filing of the required information.  A willful failure to submit the requirement information can lead to a corporate criminal fine up to $10,000 and individuals who are alleged to have willfully participated in the violation will also liable to pay a $10,000 fine and face potential imprisonment for up to one year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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