- The BE-13 reporting requirements were put in place in 2014, and reporting deadlines started in January of 2015, however there is still much confusion surrounding these rules.
- Despite the relatively quiet introduction of the BE-13, many foreign businesses and their U.S. affiliates have realized that they must now expend substantial resources in complying with its reporting requirements.
- Given the broad reach of activities covered, along with the low monetary triggers, some U.S. affiliates of foreign businesses have belatedly discovered that they may have dozens, and even hundreds, of yearly transactions now subject to the BE-13.
Although the BE-13 requirements for foreign companies investing in the United States should be old news by now, there are an increasing number of questions on this issue. The new regulations were put in place in 2014, and reporting deadlines started in January of 2015, however there is still much confusion surrounding these rules. But first, for clarification, note that the BE-13 reporting requirements are for U.S. subsidiaries of foreign-owned companies. These requirements are different than the BE-10 reporting requirements for U.S. companies with foreign subsidiaries.
The U.S. Department of Commerce’s Bureau of Economic Analysis (BEA), which is responsible for collecting and analyzing data regarding the U.S. economy, has reinstated the BE-13 “Survey of New Foreign Direct Investment in the United States.” The BE-13, which had been discontinued in 2009 due to budget cuts, will assist in measuring the Department of Commerce’s “Build It Here, Sell It Everywhere” initiative to expand foreign investment in the U.S. Depending on a company’s business activities, these regulations may have created a time-consuming reporting for certain companies.
The BEA first published a notice for the proposed reinstatement in the Federal Register on May 28, 2014. Surprisingly, however, despite a two-month period for public comments, the BEA did not receive a single response. Subsequently, on Aug. 14, 2014, the BEA published a final rule adopting the BE-13 as set forth in the initial notice without any changes.
Despite the relatively quiet introduction of the BE-13, many foreign businesses and their U.S. affiliates have realized that they must now expend substantial resources in complying with its reporting requirements. Given the broad reach of activities covered, along with the low monetary triggers (see below), some U.S. affiliates of foreign businesses have belatedly discovered that they may have dozens, and even hundreds, of yearly transactions now subject to the BE-13. To date, BEA has not provided much in the way of substantive guidance. The following is an overview of the BE-13 reporting requirements:
Persons Subject to the BE-13 Reporting Requirements
A BE-13 report must be filed if one of the three following criteria are met:
- A foreign investment is made in an existing U.S. business enterprise.
- 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.
- An entity that had previously filed a BE-13 report is contacted by BEA for an update.
It is important to note that unlike other BEA surveys – such as the BE-605 (Quarterly Survey), BE-15 (Annual Survey) and BE-12 (Benchmark Survey) – U.S. affiliates subject to the BE-13 must file a report, regardless of whether they have been directly contacted by the BEA.
Various BE-13 Forms
A BE-13A should be used to report the acquisition of a voting interest (directly or indirectly through an existing U.S. affiliate) in an existing U.S. business enterprise, segment, or operating unit if (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) the acquisition involves at least 10 percent of the voting interest of the newly acquired entity.
A BE-13B should be used to report the establishment of a new legal entity by the foreign entity (or its U.S. affiliate) if (i) the projected total cost to establish the new entity is greater than $3 million; and (ii) the foreign entity owns at least 10 percent of the new entity’s voting interest.
A BE-13C should be used if the U.S. affiliate of a foreign entity acquires a U.S. business enterprise or segment and merges it into its existing operations and the total cost of the acquisition is greater than $3 million.
A BE-13D should be used if the U.S. affiliate of a foreign entity expands its operations to include a “new facility” where business is conducted and for which the projected total cost of the expansion is greater than $3 million.
A BE-13E should be used to provide an update on the construction of an established or expanded entity as previously reported under a BE-13B or BE-13D. Although the actual BE-13E form has yet to be published, BEA officials have stated that, unlike the other BE-13 reports, the U.S. affiliate of a foreign entity will be required to file a BE-13E only if it is directly contacted by BEA.
- BE-13 Claim for Exemption
A BE-13 “Claim for Exemption” should be used if one of the following occurs: (i) the U.S. affiliate of a foreign entity is directly contacted by BEA but does not meet the requirements for filing any of the BE-13 forms; or (ii) the U.S. affiliate meets all of the requirements for filing of a BE-13 form, except for the $3 million threshold.
One of the key issues in complying with these new requirements is determining whether the company has a “New Facility” under these regulations. However, this determination is not always an easy one. The BEA has published very little guidance on the definition of “new facility.” The little existing guidance states that a “new facility” includes the lease or construction of a facility in which business is conducted, although the acquisition of land is not per se dispositive. Furthermore, the transfer of existing operations from one location to another is not considered a “new facility” and is not reportable. Likewise, the replacement of equipment and the upgrade or expansion of an existing facility are also not reportable. The source of funding (whether foreign or domestic) is also not a factor in determining which transactions need to be reported (though the BE-13 form does ask for a breakdown of funding according to its source). In general, whether new construction qualifies as a “new facility” that is reportable on the BE-13 is a very fact-specific analysis. The determination of what is or is not a new facility could create a large reporting burden for companies.
Confidentiality and Filing Deadlines
In general, BEA operates under strict confidentiality requirements. First, under BEA’s governing statute, access to any information obtained from BEA surveys is limited to “officials or employees designated to perform functions” under the regulations. Second, information gathered from BEA surveys may only be used “for analytical or statistical purposes” (or in penalty proceedings for willful violations of filing requirements). Finally, information gathered by BEA is statutorily exempt from Freedom of Information Act (FOIA) requests.
For transactions between Jan. 1, 2014, and Nov. 26, 2014, the filing deadline was Jan. 12, 2015. For all subsequent transactions, the deadline is 45 days after a reportable transaction. Although filings are mandatory, BEA is aware that many persons subject to the reporting requirements are still working to understand the parameters of the regulatory requirements, and that many of the first filings are late. BEA staff have indicated that they are not aggressively pursuing non-filers at this time, but may do so in the future.