For the first time in its history, the U.S. Committee on Foreign Investment in the United States (CFIUS) plans to require the payment of fees in connection with the submission of full notifications for covered foreign investment transactions, with the fee size dependent on the value of the transaction. The fees will apply whether the CFIUS filing is mandatory or voluntary under applicable rules, and whether it applies to controlling or non-controlling acquisitions of covered US businesses or covered real estate transactions.
When finalized, the proposed rule and fee levels will have a potentially significant effect on a wide range of foreign investors. Where filings are voluntary, the decision to file or not could be affected by the size of the applicable fees – especially for large foreign acquisitions of other foreign businesses with US components, where the fee will be determined in most cases by the global value of the transaction rather than simply its US value.
Background. The Foreign Investment Risk Review Modernization Act (FIRRMA) was enacted in 2018 and authorized CFIUS to collect filing fees provided that such fees do not exceed an amount equal to the lesser of one percent of the value of the transaction, or $300,000, adjusted annually for inflation.
Tiered, Fixed Fee Levels Keyed to Transaction Size. Specifically, pursuant to this authorization, CFIUS yesterday proposed a new rule adopting the following tiered, fixed fee structure based on the “value of the transaction:”
Fees Applicable to Full Notifications for All Covered Acquisitions and Real Estate Transactions: Notably, the proposed Treasury rule only applies to transactions for which a full notification is submitted to CFIUS, including both the acquisitions of control over US businesses and non-controlling acquisitions and real estate transactions. The fee also applies whether the transaction involves mandatory filings (for certain covered transactions involving foreign government ownership or US firms with critical technologies) or voluntary filings (which is the case for most transactions).
Fees Not Applicable to Short-Form Declarations. CFIUS does not plan to charge a filing fee when the parties elect to submit a short form declaration instead of a full voluntary notification. However, the fee would be assessed for full notifications requested by CFIUS at the conclusion of a declaration process and for full filings submitted by the parties in lieu of a mandatory declaration.
Determining the Value of the Transaction. CFIUS settled on the “value of the transaction” as the metric for assessing the fee size and described the valuation methodology with particularity. To assist CFIUS in making this determination on a case-by-case basis, the parties will now be required to provide, in their voluntary notices, the value of the transaction, the methodology used to determine it and the applicable fee in voluntary notices.
Transaction Payment as the General Benchmark. In most circumstances, CFIUS anticipates that the value determination will be based on the amount of money the foreign person is paying in the transaction. Generally, for covered transactions and real estate purchases, the value of a transaction will be the total value of all consideration that has been or will be paid in the context of the transaction by or on behalf of the foreign person who is a party to the transaction, including cash, assets, shares or other ownership interests, debt forgiveness, services, or other in-kind consideration.
- Real Estate Leases and Concessions. Subject to certain exceptions, leases and concessions would be valued according to the sum of the consideration, including lease inducements, fixed payments, certain variable lease payments, and other types of considerations applicable to real estate transactions.
- Securities and Other In Kind Purchase. For transactions where the consideration is a security traded on a national securities exchange, the value of the transaction will be calculated on the basis of the closing price on the national securities exchange on which the securities are primarily listed on the trading day immediately prior to the date the parties file a CFIUS notification. Where the consideration includes other non-cash assets, interests, or services or other in-kind consideration, the value of the consideration would be the fair market value (as defined in the rules) as of the date the parties file the notice.
- Global Value as the Benchmark. Surprisingly, in a decision likely to be controversial, where a covered transaction involving a US business or US real estate is part of a larger transaction that involves one or more non-US businesses, the total value of the transaction nevertheless will generally be assessed based on the global value of the transaction encompassing both US and non-US businesses. Thus, foreign acquisitions of other foreign businesses that include US businesses or real estate could incur sizable filing fees if this proposed rule is actually adopted – which possibly could be a consideration in whether to file where such filings are voluntary.
- Limited Exception. The proposed rule includes an exception for small covered non-real estate transactions where the value of the transaction is $5,000,000 or more, but the value of the interests or rights acquired in the US business is less than $5,000,000. In this case, the fee will be only $750 in order to avoid potential disincentives to file when the target business has a limited US presence. CFIUS is considering a similar exception for small real estate transactions and has invited comments on this part of the proposed rule.
Power to Reject Filings If Fees Insufficient. The proposed fee rule also has teeth, as CFIUS will have the authority to reject any voluntary notice upon determining that the filing fee paid by the parties was insufficient under the rules.
Comments on Proposed Rule. Comments to the new rule, which has been issued in proposed form and does not yet take effect, are due 30 days after publication in the Federal Register, which is expected to be March 9, 2020. Therefore, the expected deadline is April 8, 2020.
Additional Updates Forthcoming. This is the first of a number of updates we plan to provide on the new CFIUS rules recently put into effect and how they may affect your business operations.