For many years, the U.S. Department of Commerce’s Bureau of Economic Analysis (the “BEA”) administered a series of voluntary surveys of foreign direct investments in the United States. In 2003, compliance with this reporting system became mandatory, and penalties were authorized for failure to file. Civil penalties may include fines ranging from US$2,500 to US$25,000 and injunctive relief to comply. Willful failure to file may result in fines of up to US$10,000 and imprisonment for up to one year.
However, despite being mandatory for over four years, and despite significant penalties for failure to file, the BEA’s reporting requirements are still not well understood and are often overlooked by foreign persons with U.S. interests and by the U.S. businesses in which they invest. The BEA reporting requirements are summarized below.
Initial Transaction Reports
Generally speaking, either a non-U.S. buyer/investor or the U.S. person which has the U.S. buyer/investor must file an initial report with the BEA on Form BE-13 or Form BE-13 Supplement C within 45 days of any of the following transactions:
- Establishment of a New U.S. Business Enterprise. A non-U.S. person establishes any new U.S. subsidiary or other type of for-profit U.S. entity, organization, association, branch or venture (a “U.S. business enterprise”), regardless of whether the U.S. business enterprise is owned directly or indirectly through an existing U.S. affiliate of the non-U.S. person.
- Acquisition of an Existing U.S. Business Enterprise. A non-U.S. person acquires an existing U.S. business enterprise, even if the acquisition is made indirectly (for example, by virtue of having acquired the foreign parent company of the U.S. business enterprise); or
- 10% Investment in a U.S. Business Enterprise. A non-U.S. person acquires a 10% or greater voting interest in an existing U.S. business enterprise, directly or indirectly.
In addition, in certain circumstances, a U.S. person that assists the non-U.S. person with or intervenes in a purchase or investment transaction described above is also required to file a report with the BEA on Form BE-14 within 45 days of the transaction.
A U.S. business enterprise in which a non-U.S. person has a 10% or greater voting interest must also file the following reports under the BEA’s periodic reporting system:
Quarterly Reports for Non-Exempt U.S. Business Enterprises. Within 30 days after the end of each fiscal quarter (45 days in the case of the fourth quarter), a non-exempt U.S. business enterprise must file a quarterly report on Form BE-605 or Form BE-605 Bank.The threshold for exemption from this quarterly reporting is that the U.S. business has less than US$30 million in each of its assets, sales/revenues and net income (net of applicable U.S. income taxes), but such an exempt enterprise must nonetheless file an initial quarterly report and specifically claim the exemption on that basis.If such an enterprise is initially exempt but later exceeds US$30 million in any of these categories, the enterprise will cease to be exempt and must then commence quarterly reporting on the Form BE-605 or Form BE-605 Bank, as appropriate.
Annual Reports for Non-Exempt U.S. Business Enterprises. By March 31 of each year, a non-exempt U.S. business enterprise must file an annual report on Form BE-15 Long Form or Form BE-15 Short Form.(As with the quarterly reports, the exemption threshold is US$30 million in each of assets, sales/revenues and net income (net of applicable U.S. income taxes).An exempt enterprise must nonetheless file at least one annual report and claim such exemption on that specific basis using Form BE-15 Supplement C.)
Exemption Filings for Members of a Consolidated Group. If more than 50% of the voting interest in a U.S. business enterprise (a “subsidiary”) is owned by another U.S. business enterprise that is subject to the BEA reporting system (a “parent”), the subsidiary may generally claim an exemption from the BEA’s quarterly and annual reporting requirements if (a) information regarding the subsidiary is consolidated in the parent’s quarterly and annual reports to the BEA and (b) the subsidiary itself makes one-time exemption filings on (i) Forms BE-605 or BE-605 Bank to claim an exemption from quarterly reporting and (ii) Form BE-15 Supplement C to claim an exemption from annual reporting.
In addition to the above reports, the BEA also conducts special surveys every five years and will send out to survey forms (Form BE-12) to any U.S. business enterprise that has more than 10% foreign ownership, based on prior reports filed with BEA during the year preceding a survey year. The U.S. businesses must complete and return such Form BE-12’s by May 31 following receipt of the form. According to the BEA schedule, such surveys will be conducted in 2008, 2013 and so on, so U.S. businesses who report such foreign ownership to BEA in 2007, 2012 and so on would be required to take part in these benchmark surveys.
By statute, all such BEA reports submitted by foreign or U.S. persons will remain confidential and cannot be used for purposes of taxation, investigation or regulation by the U.S. government. These reports may only be used for analytical or statistical purposes and may not be individually identified.