While it may be overshadowed by this year’s benchmark survey for existing foreign direct investments, U.S. businesses and foreign investors should not forget the BE-13’s reporting requirements for new and expanded foreign direct investment in the United States, says Mayer Brown’s Matthew Bisanz.
Unlike the annual and quarterly surveys, the BE-13 must be filed regardless of whether a U.S. business enterprise is contacted by the U.S. Department of Commerce’s Bureau of Economic Analysis (BEA). The BE-13 must be filed by U.S. business enterprises, including branches, that are acquired or established by a foreign person. It also must be filed by existing U.S. affiliates of a foreign person if the U.S. business enterprise establishes a new U.S. legal entity, expands its U.S. operations or acquires another U.S. business enterprise.
BEA collects information about and conducts research and analysis on the U.S. economy, which it uses to produce data and statistics for governmental and public use. One of the topics researched and studied by BEA is cross-border business with U.S. entities. Specifically, one of the broad sets of statistics published by BEA is on international transactions and direct investment positions by foreign individuals in the United States.
To develop the statistics on international transactions and direct investment positions, BEA requires U.S. business enterprises to make certain filings if they are acquired, established or expanded by a foreign investor. BEA’s authority to impose the reporting requirements comes from the International Investment and Trade Services Survey Act and its implementing regulations. These reporting requirements include transactions where a foreign parent establishes, acquires or expands a presence in the United States, transactions between a U.S. affiliate and its foreign affiliate group and financial and operating data of U.S. affiliates. Penalties for failing to make required filings can be significant, as they include both civil and criminal penalties as well as imprisonment.
There are several major BEA filings relevant to a U.S. business enterprise with a foreign parent. One is the BE-13, which U.S. business enterprises must make when a new foreign direct investment relationship is created or an existing U.S. affiliate of a foreign parent establishes a new U.S. legal entity, expands its U.S. operations, or acquires a U.S. business enterprise. Another filing is the BE-605, which is a quarterly report of transactions between a U.S. affiliate and its foreign parent(s) or between a U.S. affiliate and the foreign affiliates of a foreign parent. Certain U.S. business enterprises with foreign owners may also be required to file the annual BE-15 survey or benchmark BE-12 survey. Business enterprises required to file the BE-605 or BE-15 are contacted by BEA to file.
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The BE-13 benchmark survey
Since it was reinstated in 2014, BEA has used the BE-13 survey to collect information on new and expanded foreign direct investment in the United States. The BE-13 survey is one of BEA’s few event-driven reports, and therefore can easily trip up U.S. businesses and foreign investors. BEA uses the data from the BE-13 survey to measure the amount of new foreign direct investment in the United States and ensure complete coverage of BEA’s other surveys.
Generally, the BE-13 survey requests information about the acquisition, establishment or expansion of a U.S. business enterprise by a foreign person (including the identity of U.S. subsidiaries, parent entities and the ultimate foreign beneficial owner), total cost, industry classification and prior investment relationships. In addition, U.S. business enterprises must report on select financial and operating data, such as the number of employees that will be associated with a new facility. Business enterprises may need to calculate or recalculate the requested data based on BEA’s specifications. Under the International Investment and Trade in Services Survey Act, the information business enterprises report is confidential, even as to other government agencies.
Required BE-13 forms
There are a range of BE-13 forms. The exact BE-13 form that a business enterprise must file depends on the business’s attributes:
- BE-13A: Filed by existing U.S. business enterprises if (i) the cost of the acquisition to the foreign person is greater than $3 million and (ii) at least 10% of the voting interests of the U.S. business enterprise is held directly or indirectly by the foreign person. This includes the acquisition of all or part of a U.S. business enterprise, the purchase of U.S. real estate/land that is intended for lease or sale without significant added construction and the establishment of a new U.S. business enterprise that will be used to acquire another U.S. business enterprise.
- BE-13B: Filed by newly formed U.S. business enterprises if (i) the cost to establish and operationalize the business is greater than $3 million and (ii) at least 10% of the voting interests of the U.S. business enterprise is held directly or indirectly by the foreign person. This includes the creation of unincorporated legal entities (e.g., branches), the construction of real estate that will be leased or sold, the purchase of U.S. real estate/land for construction (other than for expansion) and the establishment of a U.S. entity’s first location.
- BE-13D: Filed by expanding U.S. business enterprises if (i) the cost of a new facility exceeds $3 million and (ii) at least 10% of the voting interests of the U.S. business enterprise is held directly or indirectly by a foreign person. This includes the construction or leasing of a new facility, expansion of an existing facility to include new buildings or structures and the purchase of U.S. real estate for construction of an expansion facility.
- BE-13 Claim for Not Filing: Filed by a U.S. business enterprise that (i) otherwise meets the requirements to file a BE-13A, BE-13B or BE-13D but the amount of the transaction does not exceed $3 million or (ii) is contacted by BEA but does not satisfy the reporting criteria.
Who must file?
Unlike other BEA surveys, which are required only for the select entities contacted by BEA, all entities with a foreign voting ownership interest of 10% or more and all U.S. affiliates of foreign parents must file the BE-13 for a triggering event. The definition of a U.S. business enterprise for reporting purposes is broad and includes not only legal entities but also branches and other unincorporated ventures, real estate, land and land rights. Specifically, the filing requirement applies to real estate owned for profit-making purposes (i.e., not held for personal use of a corporation owner or an owner’s primary residence). Further, there is no minimum asset or revenue threshold for filing, only the $3 million transaction amount.
There are a limited number of exemptions that may apply to certain U.S. business enterprises. For one, only the top-tier U.S. affiliate generally needs to file a consolidated BE-13. If a lower-tier affiliate receives a request from BEA to file, that affiliate should submit a claim of exemption and refer the request to the top-tier affiliate. Another exemption is if a smaller business enterprise was established to acquire a U.S. business enterprise, the acquisition will be reported on a BE-13A, and the acquisition vehicle will be dissolved thereafter. Further, certain private funds are exempt from submitting the survey. If an exempt business receives a notification to file from BEA, the enterprise must submit a BE-13 Claim for Exemption (even if it does not receive notification from BEA, an exempt business must file a claim for exemption if it satisfies the triggering conditions other than the $3 million threshold).
When considering whether a foreign person has a 10% or more ownership interest, the interest is usually based on the percentage of ownership of voting securities or equivalent interests. For partnerships, general partners are presumed to have a 100% voting interest shared equally. Limited partners are presumed to have no voting interest in a U.S. business enterprise unless the partnership agreement provides limited partners with voting rights. For limited liability companies, members are presumed to share 100% of the voting interest equally, regardless of the division of equity or the designation of one member as a managing member.
Notably, additional investments by a foreign person are not reportable on the BE-12. For example, if a foreign person already owns 15% of a U.S. business enterprise and acquires an additional 30%, the acquisition is not reportable. Further, divestiture of an interest in a U.S. business enterprise is not reported.
When is the BE-13 due?
The BE-13 must be submitted within 45 days of the completion of an acquisition, establishment of a new legal entity or initiation of an expansion.
U.S. business enterprises, including unincorporated businesses, land and real estate, and potential foreign investors should evaluate whether they must file a BE-13 report when participating in new foreign direct investment activities in the United States. This can be a delicate discussion because the reporting requirements apply to a U.S. business enterprise but require the foreign investor to provide information that will be disclosed to BEA. Further, filing the BE-13 may lead to requests from BEA to complete other surveys such as the BE-15. Therefore, business enterprises should begin working with counsel early in a transaction to ensure that the necessary information will be made available and that there is a plan for filing put in place.