United States: Proposed Rule Changes On Form BE-605 Filing Could Have Implications For U.S. Businesses With Foreign Investors

The U.S. Department of Commerce Bureau of Economic Analysis (BEA) recently proposed to raise the exemption threshold for Form BE-605 reporting from the current $30 million to $60 million, which, if implemented, would qualify more businesses for exemptions and significantly reduce the filing burden of these businesses. The BEA also proposed to do away with the existing distinction between banks and non-banks as to the required Form BE-605 filing. U.S. business entities in which a foreign person acquires ten-percent-or-more voting interest or equivalent interest in an unincorporated entity should comply with the BEA filing requirements to avoid any civil or criminal penalties.

The BEA administers a series of surveys of foreign direct investments in the United States. A U.S. business receiving investments from foreign natural or legal persons could be obligated to file quarterly, annual and five-year reports with the BEA unless it has filed for the proper exemptions. The reports to the BEA are confidential and can only be used for analytical or statistical purposes. U.S. businesses that fail to file the BEA reports may be subject to civil or even criminal penalties.

However, the BEA mandatory reporting is relatively unknown to many U.S. companies—and BEA enforcement has been lax in the past. Very few companies (if any) have been penalized for failing to file with the BEA.

To help U.S. companies determine whether they are required to file, 2009 BEA reporting requirements are provided below.

Who Must File

Any U.S. business entity ("reporting affiliate") in which a foreign person acquires or controls, directly or indirectly, ten percent or more voting interest or equivalent interest in an unincorporated entity, whether through creation of a new U.S. business enterprise, acquisition of an existing U.S. business, or purchase of U.S. assets or real estate, must file mandatory reports or a claim for exemption with the BEA. The reporting affiliate must file separate BEA reports for each foreign person who, directly or indirectly, owns ten-percent-or-more voting interest in the reporting affiliate.

Types of Reports to Be Filed With the BEA

Form BE-605 Quarterly Report.The reporting affiliate must file Form BE-605 (non-bank businesses), or Form BE-605 Bank (U.S. banks or affiliates) with the BEA every calendar or fiscal quarter. Depending on whether the foreign voting interest in the reporting affiliate is direct or indirect, the reporting affiliate may or may not need to complete certain parts of the form. Beginning in 2009, the BEA no longer requires the reporting affiliate to file an initial investment report on Form BE-13; instead, the reporting affiliate should file both the initial report and quarterly report on Form BE-605.

In September 2009, the BEA proposed to do away with the existing distinction between banks and non-banks. If the proposal is adopted, both types of businesses would file the same Form BE-605 beginning in 2010.

Form BE-15 as Annual Report. In addition to Form BE-605, the reporting affiliate must also file annual reports on appropriate BE-15 forms. Form BE-15 consists of three different forms—Form BE-15A, Form BE-15B and Form BE-15(EZ). Depending on its size and total assets, the reporting affiliate needs to file the appropriate BE-15 form.

Quinquennial (five-year) Report. The BEA conducts a comprehensive survey of foreign direct investment in the U.S. every five years, and the survey requires all the BEA reporting companies to complete a quinquennial report. The last survey was conducted in 2007 on Form BE-12, which replaced the regular annual reporting form, Form BE-15. The BEA will not request another quinquennial report until 2012.

Available Exemptions

Exemption From the Quarterly Report Filing.The reporting affiliate may file for a quarterly report exemption if the reporting affiliate meets any the following conditions:

• The reporting affiliate's assets, sales and net income areeach below $30 million.
  
  
• The reporting affiliate was consolidated, merged into, or reorganized into another BEA reporting affiliate.
• The reporting affiliate is foreign owned indirectly through another U.S. company and has no direct transactions with the foreign parent(s) or any of its(their) foreign affiliates.
• The foreign voting interest in the reporting affiliate has dropped below the 10 percent threshold required to file.

In September 2009, the BEA proposed to increase the exemption threshold for Form BE-605 reporting from the current $30 million to $60 million, which, if implemented, would qualify more businesses to file for exemptions. November 5, 2009, is the deadline for the submission of public comments on the proposed rules.

Exemption from the Annual Report Filing. The reporting affiliate may file for an annual report exemption if any of the following conditions are met:

• Foreign ownership in the reporting affiliate falls below 10 percent.
• The reporting affiliate is fully consolidated or merged into another U.S. affiliate.
• Each of the following three items for the reporting affiliate (not just the foreign parent's share) are $40 million or less: i) total assets; ii) annual sales or gross operating revenues; and iii) annual net income (loss) after provision for U.S. income taxes.

The reporting affiliate only needs to file for an annual report exemption once, and will be exempt from further annual filings as long as the reporting affiliate meets the stated exemption criteria from year to year.

Exemption from the Quinquennial Report Filing. The BEA has not yet provided the details of the quinquennial report or the exemption criteria.

When to File

The following guidelines apply to with regard to filing deadlines for BEA reports.

First-Time Quarterly Report (BE-605)—Within 30 days after the end of the calendar or fiscal quarter in which the transaction closed

Quarterly Report (BE-605) (if not exempted)—Within 30 days after the close of each calendar or fiscal quarter. The report for the fourth quarter may be filed within 45 days after the end of that quarter

Annual Report (BE-15) (if not exempted)—No later than May 31for fiscal years ending in the preceding year. The 2009 annual report will be due on May 31, 2010.

Quinquennial Report—To be determined by the BEA based upon their five-year survey date

Potential Civil and Criminal Liabilities

The reporting affiliate and its directors and officers who fail to file the BEA reports could each be subject to a civil penalty of not less than $2,500 and not more than $25,000. To seek such civil penalty, the BEA needs to bring a civil lawsuit against the company and involved individuals in U.S. federal district court. Additionally, the BEA may also seek an injunction order from the court commanding the reporting affiliate to comply with the reporting requirement. Companies or individuals who willfully violate the BEA reporting obligations are subject to a fine of not more than $10,000 or a term of imprisonment of one year or less.

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.