On March 9, 2020, the U.S. Department of the Treasury published a proposed rule establishing filing fees for parties filing a voluntary notice with the Committee on Foreign Investment in the United States (CFIUS). The filing fee would be set based on the transaction value. No filing fees would be required for a short-form declaration, whether voluntary or mandatory. Comments are due on the proposed rule by April 8, 2020, and the fee requirement will only take effect after Treasury publishes the final rule.
Amount and Applicability of Filing Fees
The prospect of a CFIUS filing fee has been on the horizon since the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) was enacted. FIRRMA provides for the availability of a filing fee based on transaction value. When new regulations were promulgated to implement FIRRMA, they did not include any provisions requiring filing fees.
Under the proposed rule, filing fees would only be due when parties elect to file a joint voluntary notice to CFIUS pursuant to the regulations for covered transactions under 31 C.F.R. Part 800 or for covered real estate transactions under 31 C.F.R. Part 802. Filing fees will not be charged for any declaration (shortform filing) submitted to CFIUS, whether voluntary or mandatory, nor for any unilateral review of a transaction initiated by CFIUS. However, if parties submit a declaration to CFIUS and CFIUS either requests the filing of a joint voluntary notice or takes no action on the declaration and parties choose to file a joint voluntary notice, a filing fee would be assessed for the subsequent notice. Transactions valued below $500,000 will not be assessed a filing fee.
The breakdown of proposed filing fee amounts by transaction value is below:
- Transaction valued at $500,000 to $4,999,999: filing fee of $750;
- Transaction valued at $5,000,000 to $49,999,999: filing fee of $7,500;
- Transaction valued at $50,000,000 to $249,999,999: filing fee of $75,000;
- Transaction valued at $250,000,000 to $749,999,999: filing fee of $150,000; and
- Transaction valued at $750,000,000 or higher: filing fee of $300,000.
The proposed rule includes a methodology for calculating transaction value, which it defines as “the total value of all consideration that has been or will be provided in the context of the transaction by or on behalf of the foreign person that is a party to the transaction”. This could include cash, assets, shares or other ownership interests, debt forgiveness, services, or other in-kind consideration. If the consideration includes publicly traded securities, the transaction value would be based on the closing price of the securities on the trading day immediately prior to the date the parties file the joint voluntary notice with CFIUS. Lending transactions would be valued at the cash value of the loan or financing arrangement. Non-cash assets, services, interests, or in-kind consideration would be valued at fair market value on the date the notice is filed. Lastly, if the transaction arises from the conversion of a contingent equity interest previously acquired by the foreign party, the value would include the consideration paid by or on behalf of the foreign person initially to acquire that interest, in addition to any other consideration paid in connection with the conversion. If the consideration cannot reasonably be determined as of the filing date, the transaction value will be deemed to be the fair market value of the assets being acquired as of the filing date.
Additionally, the transaction value amount generally reflects the global value of the transaction encompassing both U.S. and non-U.S. businesses of the target company. However, the proposed rule includes one exception to minimize the filing fee’s role as a disincentive to making a CFIUS filing in the event that the target company has a limited presence in the United States. If the global transaction value is equal to or greater than $5,000,000, but the value of the interests or rights acquired in the U.S. business is less than $5,000,000, the filing fee will be $750.
Refund, Resubmission, and Rejection Rules
Ordinarily, CFIUS will not refund a filing fee. However, it may do so if it determines that the transaction is not a “covered transaction” under the CFIUS regulations or if the parties successfully petition that they paid a filing fee greater than required.
Any filing fee due will be required to be paid before CFIUS will accept a notice for review. Notably, the proposed rule states that CFIUS is not bound by the parties’ characterization of the transaction, its value, or the parties’ good faith approximation of the transaction value. CFIUS is empowered to reject a notice if it determines that the filing fee is insufficient and the parties have not timely paid the remainder of the filing fee that CFIUS has calculated.
If the parties withdraw and refile the notice, they will not be required to pay an additional filing fee unless a material change to the transaction has occurred or a material inaccuracy or omission was made in the filing.
This proposed rule brings to fruition the potential for CFIUS filing fees first mentioned in FIRRMA. Parties to transactions that may involve a CFIUS filing should take note of this new possibility and include language in transaction agreements to assign responsibility for this new filing fee, if applicable.