BEA Reissues Required Survey for U.S. Affiliates
In November, the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce issued—under the authority of the International Investment and Trade in Services Survey Act—additional reporting requirements designed to identify and measure the prevalence of foreign investment in the United States.
In its effort to collect data regarding international investment and trade in the U.S., the BEA issues surveys to be completed by certain incorporated and unincorporated U.S. businesses and commercial U.S. real estate ventures that are 10 percent or more owned—directly or indirectly—by foreign investors (U.S. affiliates). Reporting by U.S. affiliates is to be made on BEA-issued forms found on and filed through the BEA website. Information reported by U.S. affiliates in BEA surveys is confidential and used by the BEA only for analytical and statistical purposes.
The survey likely to be most applicable to U.S. enterprises with foreign investors is the reissued and revised Form BE-13, New Foreign Direct Investment in the United States, designed to collect information regarding new or expanded foreign investment in the U.S. Beyond serving a statistical function, this mandatory survey will help the BEA identify U.S. affiliates that must file the BEA’s related benchmark, annual and quarterly surveys of foreign direct investment, as described below.
Transactions that newly created or existing U.S. affiliates must report on Form BE-13 include:
- Acquisitions that result in foreign ownership, directly or indirectly through an existing U.S. affiliate, of at least 10 percent of voting interest in an existing U.S. business enterprise (either incorporated or unincorporated), segment or operating unit, in which the U.S. enterprise will operate as a separate legal unit
- Mergers of U.S. business enterprises or segments into the operations of an existing U.S. affiliate
- Acquisitions by a foreign person, directly or indirectly through an existing U.S. affiliate, of a 10 percent or greater interest in U.S. real estate that is intended for lease or sale, irrespective of whether the acquisition involves significant added construction (An acquisition of residential real estate for personal use need not be reported.)
- Acquisitions by a foreign entity or an existing U.S. affiliate of at least 10 percent of the voting interest in a newly established U.S. legal entity, whether incorporated or unincorporated, and regardless of whether such entity will conduct physical operations
- The expansion of an existing U.S. affiliate by way of lease or purchase of a new facility where business is to be conducted (A transfer of existing operations from one location to another, replacement of equipment or the upgrade or expansion of an existing facility is not required to be reported.)
For transactions with associated costs of greater than $3 million, Form BE-13 requires disclosure of fairly detailed information regarding the covered transaction itself and its participating parties. If the total or projected cost of an otherwise reportable transaction does not exceed $3 million, the affiliate must file with the BEA a claim for exemption form but is subject to less stringent reporting requirements. On BEA request, U.S. affiliates also may be required to provide updated information about costs associated with previously reported transactions involving newly established enterprises, new construction or business expansions.
Reports—and claims for exemption, if applicable—are due no later than 45 days after a qualifying acquisition is completed, legal entity is established or expansion has begun, or after the BEA has requested a cost update for reportable entity establishments or construction. Also, the BEA requires retroactive reporting of any qualifying transactions occurring on or after January 1, 2014.
Upon direct request from the BEA, certain U.S. affiliates will be required to file quarterly surveys (Form BE-605) reporting financial information of and recent transactions between U.S. affiliates and their foreign parents. These affiliates also will be required to file annual surveys (Form BE-15) reporting their annual financial and operating data. The BEA also requires all U.S. affiliates meeting applicable financial thresholds to file comprehensive benchmark surveys once every five years; those that do not meet the thresholds must file claims for reporting exemptions. The benchmark survey requires disclosure of, among other things, U.S. affiliates’ financial data, transactions that occur between U.S. affiliates and their foreign parents, research and development expenditures by U.S. affiliates and their foreign parents and data regarding employees of and tax payments made by U.S. affiliates and their foreign parents. The next benchmark filing year will be 2017.
Failure to satisfy the BEA reporting requirements could lead to significant civil and criminal penalties. Civil fines for failure to comply may range from $2,500 to $32,500. A willful failure to satisfy reporting requirements carries with it a criminal fine of up to $10,000 and, if the offender is an individual, possible imprisonment for up to a year. Likewise, if a corporate officer, director or employee knowingly participates in a willful failure to report, he or she may be punished by a fine up to $10,000 and/or imprisonment up to a year.
To avoid penalties and possible reputational damage, businesses with foreign investors must take proactive measures to comply with the BEA’s mandatory reporting requirements and remain mindful of any communications received from the BEA requesting additional reporting.