The U.S. Department of Commerce, through the Bureau of Economic Analysis (the “BEA”), requires reporting on Form BE-10 (a “BE-10 Filing”) from any U.S. person (including entities or individuals) that had a “Foreign Affiliate” (as defined below) at any point during the U.S. person’s 2014 fiscal year. Form BE-10 is a 5-year benchmark survey, with the prior survey conducted in 2009. At the time of the 2009 survey, a BE-10 Filing was required only from a U.S. person contacted by the BEA. In a rule published in the Federal Register on November 20, 2014, the BEA announced that any U.S. person that satisfies the applicable reporting threshold discussed below (referred to as a “U.S. Reporter”) will be required to make a BE-10 Filing, regardless of whether the BEA has contacted such entity. A BE-10 Filing may be required as early as May 29, 215.
A U.S. person is required to make a BE-10 Filing if the U.S. person holds direct or indirect1 ownership or control of 10% or more of the “voting securities” of a non-U.S. entity (a “Foreign Affiliate”). Form BE-10 does not provide for any de minimis exceptions to the filing requirement for entities with limited or no assets or revenues. In determining the existence of a Foreign Affiliate, it is necessary to determine whether the interest in question is a “voting security.” As a general matter, the general partner of a limited partnership or managing member of a limited liability company will be deemed to own 100% of the voting securities of the limited partnership or limited liability company.
Form BE-10 must be filed by May 29, 2015 if a U.S. Reporter is filing to report fewer than 50 Foreign Affiliates or by June 30, 2015 if a U.S. Reporter is filing to report 50 or more Foreign Affiliates. However, the BEA has indicated that it will consider reasonable requests for extensions received by the BEA before the original due date of the report. The BEA has requested that extension requests enumerate the substantive reasons necessitating the extension on the Request for Extension Form available on the BEA website.
Content of the Form BE-10
Each U.S. Reporter is required to file a Form BE-10A to report data regarding the U.S. Reporter itself and a BE-10B, BE-10C or BE-10D, as applicable, for each of its Foreign Affiliates. If the U.S. Reporter is an entity, Form BE-10A must cover the “fully consolidated U.S. domestic business enterprise.”2 Data on the Foreign Affiliates is reported on Form BE-10B, C, or D, depending on the amount of assets, sales, or net income of each Foreign Affiliate. In certain circumstances, the BEA reporting permits consolidation of multiple Foreign Affiliates on a single Form BE-10B, C, or D. To the extent a Foreign Affiliate is owned by more than one U.S. Reporter, the U.S. Reporter with the highest percentage ownership files a complete Form BE-10B, C, or D and the other U.S. Reporter makes only a partial filing. The BEA reports are kept confidential and used for statistical analysis. The BE-10 forms and instructions can be found here.
Practical Implications for Asset Managers
Fund structures may trigger a BE-10 Filing obligation in several scenarios. Typical scenarios for a private fund structure include: (i) a U.S. fund that holds 10% or more of the voting securities of a foreign portfolio company, holding company, or other structuring vehicle; (ii) a U.S. holding company or other fund structuring vehicle that holds 10% or more of the voting securities of a foreign portfolio company; (iii) a U.S. portfolio company that holds 10% or more of the voting securities of a foreign subsidiary; and (iv) a U.S. general partner, managing member, or similar entity (but not the limited partners, who do not hold voting securities, as addressed above) that owns 10% or more of the “voting securities” of a foreign fund (including a U.S. person holding voting shares of a fund organized as a Cayman corporation). While possible, a registered investment company is less likely to trigger a BE-10 Filing obligation unless the registered investment company owns 10% or more of the voting securities of any foreign issuer.
Consequences for Failure to File
While the BEA has stated informally that it does not intend to penalize an entity that fails to file, persistent failure to file may ultimately result in civil and criminal penalties. The BEA may pursue civil penalties up to $25,000 and seek injunctive relief, and willful violations may result in criminal penalties of up to $10,000 and imprisonment for up to one year.
Changes to Other BEA Forms
For a discussion of the recent changes to the BEA Foreign Direct Investment Reporting on Form BE-13, please refer to our January 6, 2015 Alert, which can be accessed here.
Interpretive Issues and Questions
There are a number of unresolved interpretive issues that are not addressed by the BE-10 instructions, particularly with regard to the form's application to asset managers and the funds they manage.