- The Committee on Foreign Investment in the United States (CFIUS) has published a proposed rule that would establish a fee for parties filing a voluntary notice of a transaction subject to CFIUS review. Short-form declarations will not trigger a filing fee, but if the parties are instructed to file a written notice after CFIUS reviews the declaration, a fee must be paid.
- The rule establishes a tiered filing fee structure for transactions valued at $500,000 or higher; transactions valued below $500,000 would not be assessed a fee. The maximum fee under the proposed structure is $300,000, with the fee generally representing not more than 0.15 percent of the transaction's value. Except in situations of material change, inaccuracy or omission, parties asked to withdraw and refile a notice will not be assessed a separate fee.
- Under the proposed rule, CFIUS would not accept a transaction for review until the filing fee was paid.
- CFIUS has not provided an effective date, and will accept comments on the proposed rule through April 8, 2020.
The Committee on Foreign Investment in the United States (CFIUS) published a proposed rule on March 9, 2020, that would establish a fee for parties filing a voluntary notice of certain transactions for review by CFIUS.1 In establishing a fee for such notices, the proposed rule would implement Section 1723 of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which amends Section 721 of the Defense Production Act of 1950 to allow CFIUS to collect fees.
CFIUS invited the public and industry to submit comments on the proposed rule, which are due by April 8, 2020.2 Unlike previous proposed CFIUS rules, CFIUS has not established an effective date for this proposed rule; such effective date is expected to be issued at the time CFIUS publishes the final rule. The new rule would impact investors in a range of sectors, including federal, commercial and residential real estate, government contractors, private equity and other investment firms, telecommunications and others.
FIRRMA affirmed the Committee's jurisdiction over any transaction that could result in foreign control of a U.S. business, and it broadened the authorities of the president and CFIUS under Section 721 to review and to take action to address any national security concerns arising from certain non-controlling investments and real estate transactions (all transactions subject to CFIUS jurisdiction referred to as covered transactions). Additionally, certain covered transactions are now subject to a mandatory filing, which can be accomplished through a short-form declaration. (See Holland & Knight's previous alert, "New CFIUS Regulations Finally Take Effect," Feb. 13, 2020.)
FIRRMA further provided that "the Committee may assess and collect a fee in an amount determined by the Committee in regulations ... with respect to each covered transaction for which a written notice is submitted to the Committee."3 FIRRMA directed that the fee be based on the value of the transaction, taking various factors into account. It also provided that such fees may not exceed an amount equal to the lesser of 1 percent of the value of the transaction or $300,000, adjusted annually for inflation.
Filing Fees Only for Written Notices
The proposed rule would establish a fee for filing a voluntary written notice in reference to a covered transaction. The proposed fee structure and amounts are the same for covered transactions under Part 800 (U.S. businesses) and Part 802 (real estate). In accordance with FIRRMA, there is no fee for any declaration submitted to the Committee, or for any unilateral review of a transaction based on an agency notice filed by any member of the Committee. However, the filing fee will apply to notices filed by the parties after CFIUS completed its assessment of a declaration but was not able to conclude all action under Section 721 and clear the transaction, and either requests that the parties file a written notice or leaves it to the parties to decide whether to file a written notice. The filing fee would also apply where parties choose to notify CFIUS of a transaction subject to a mandatory filing through a written notice instead of a declaration.
Filing Fee Structure
The proposed fees for notices are based on the value of the notified transaction, with transactions valued at less than $500,000 not being assessed a filing fee. For transactions valued at $500,000 or more, CFIUS uses a tiered approach, with the filing fee based on the transaction value:
- $500,000 to $5 million – a filing fee of $750
- $5 million to $50 million – a filing fee of $7,500
- $50 million to $250 million – a filing fee of $75,000
- $250 million to $750 million – a filing fee of $150,000
- $750 million and up – a filing fee of $300,000.
With limited exception, CFIUS will not accept the notice until the fee is paid.
Calculating Transaction Value
The proposed rule describes with particularity how to determine the value of a transaction for purposes of calculating the applicable fee. Typically, the value of the transaction will be based on the amount of money the foreign person is paying in the transaction, i.e., the total value of all consideration that has been or will be paid in the context of the transaction, including cash, assets, shares or other ownership interests, debt forgiveness, services, or other in-kind consideration.
Where a covered transaction is a part of a transaction that includes one or more non-U.S. businesses, the total value of the transaction will generally be assessed based on the global value of the transaction encompassing both U.S. and non-U.S. businesses. The proposed rule creates an exception for covered transactions under Part 800 where the value of the transaction is $5 million or more, but the value of the interests or rights acquired in the U.S. business is less than $5 million. In such cases, the fee will be $750. This exception was intended to minimize any potential disincentives the fee may pose to parties filing a notice with CFIUS in which the target company has a limited presence in the United States.
For real estate covered transactions under Part 802, 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 identifiable consideration applicable to real estate transactions. Within the general categories of real estate transactions, certain variations in terms of valuation, payment structures, and other consideration will impact the fee calculation.
The proposed rule also addresses scenarios where consideration may be paid in securities or other non-cash assets, in services or other in-kind consideration. In the rare circumstance in which the consideration for a transaction has not been determined, the value of the transaction would be based on the fair market value of the business or real estate being acquired.
Fee Refunds and Withdrawals
Furthermore, CFIUS would not provide refunds of paid fees, unless it determines that a notified transaction is not a covered transaction. The proposed rule would also permit parties to petition CFIUS to seek a partial refund of fees if the parties can demonstrate that the fee paid is in an amount greater than required at the time of filing.
Finally, the proposed rule would not require parties to pay an additional fee where the Committee allows the parties to withdraw and refile a notice, unless it is determined that a material change to the transaction has occurred, or that a material inaccuracy or omission was made by the parties in information provided, that requires CFIUS to consider new information.
Who Pays the Filing Fee
The proposed rule does not specify who pays the filing fee; therefore, it would be up to the parties how they decide to share the burden of the filing fee through their contractual arrangements — whether the fee is split equally between the parties, or paid by the buyer as the entity that bears the risk of an unwinding. Neither does the rule specify whether parties would be fined if they did not provide accurate information to CFIUS on the value of the transaction.
CFIUS attempted to limit the impact of filing fees on new foreign investment in the U.S. by excluding small value transactions from the requirement to pay, and establishing a fee structure that is capped at 0.15 percent of the value of the transaction, substantially lower than the 1 percent authorized by FIRRMA. Industry is encouraged to submit comments on the proposed rule, particularly if they foresee a chilling effect on foreign investment in the U.S. and believe the exempted transaction value should be set up higher than $500,000.