Few people have heard of the U.S. Bureau of Economic Analysis (BEA), an agency of the Commerce Department. The BEA provides the U.S. government with statistical information regarding the U.S. economy. To aid in this endeavor, it does periodic surveys of cross-border investments (U.S. investments abroad and foreign investments in the U.S.).
Since 2014, the BEA has required U.S. entities to report certain transactions if a foreign person owns a 10 percent or greater voting interest in the entity, directly or indirectly by attribution. These forms are generally required to be filed by the U.S. entity when (i) a foreign person crosses the 10 percent threshold, (ii) the U.S. entity forms or acquires a new U.S. subsidiary, or (iii) expands its operations to include a new facility.
Additionally, the BEA requires foreign persons to file in certain instances. One such situation is where the foreign person forms or acquires a U.S. branch (or the branch expands its operations to include a new facility). Foreign persons are also generally required to file if the person acquires a 10 percent or greater interest in U.S. real estate that is held for profit (or begins significant construction on such real estate).
A U.S. entity or foreign person meets the reporting requirements by filing a Form BE-13 within 45 days of the reportable transaction. Technically, there is an exemption for transactions that are $3 million or less. However, a form must be filed to establish the exemption. The BEA will entertain reasonable requests for extension. Extensions are available by calling the BEA.
Respondents who fail to file a required report are potentially subject to a civil penalty of $4,450-44,539. Injunctive relief is also available to the BEA. Criminal penalties are also a possibility in the case of a willful failure. BEA personnel have stated informally that it is rare for them to invoke penalties (civil or criminal).
The filings with the BEA are confidential and cannot be shared with other government agencies. They can only be used by the BEA for analytical or statistical purposes. The information cannot be used in a manner that would allow a respondent to be identified without the respondent’s prior written permission. The information collected by the BEA cannot be used for the purposes of taxation, investigation, or regulation and are immune from legal process.
10 percent-Owned U.S. Entities
Filings are required if a foreign person owns at least 10 percent of the voting interests in a “U.S. business enterprise.” A business enterprise is defined as “any organization, association, branch, or venture that exists for profit-making purposes or to otherwise secure economic advantage, and any ownership of any real estate.” 15 CFR § 801.2(f).
Based upon the above, a U.S. business enterprise is defined to include a U.S. corporation, unincorporated entity (such as an LLC, partnership, joint venture), or branch. A U.S. business enterprise is treated as having a 10 percent foreign owner if a foreign person owns 10 percent or more of the equity (by vote) directly, or indirectly through a U.S. business enterprise by attribution.
For a partnership (general or limited), the voting interests are presumed to be divided equally among the general partners (with the limited partners presumed to have zero voting rights), unless otherwise stated in the partnership agreement. With respect to an LLC, the voting interests are presumed to be divided equally among the members, unless otherwise stated in the articles of organization or the operating agreement.
New rules apply to US hedge funds, effective as of on January 1, 2017. Such funds will no longer be required to file Forms BE-13 if the fund does not own a 10 percent voting interest in an operating company.
The definition of U.S. business enterprise includes the direct ownership of U.S. real estate (including land) that is intended by the foreign owner to be used in a business or for sale or lease. The purchase of U.S. real estate to be held exclusively for personal use (and not for profit-making purposes) is not considered a U.S. business enterprise.
In determining whether an individual is a U.S. or foreign person, generally, the person’s country of citizenship will control. However, the country of residence will control, if different, if the individual resides, or expects to reside, in a different country for one year or more. There are exceptions to this residence rule if an individual has a business reason for residing in a country that is different from his country of citizenship.
There are five different types of Forms BE-13. Below is a list of the forms and a discussion of which ones apply to given transections:
- Form BE-13A –
- Filed by U.S. business enterprises to report the acquisition of a 10 percent voting interest by a foreign person.
- Filed to report the creation of a new U.S. business enterprise for the sole purpose of acquiring another U.S. business enterprise within 30 days of the formation.
- Filed to report the purchase of U.S. real estate that is intended for sale or lease (and no significant added construction is expected).
- The form does not need to be filed if the total cost of the acquisition is $3 million or less.
- Form BE-13B –
- Filed to report the creation of a new U.S. legal entity (or branch), including an entity with no physical operations, that meets the 10 percent foreign ownership requirement after formation. There is an exemption for certain entities that were formed to facilitate acquisitions.
- Filed to report the purchase of U.S. real estate (or construction of previously owned U.S. real estate) for which significant added construction is expected (other than for expansion purposes).
- The form does not need to be filed if the total cost is $3 million or loss.
- Form BE-13D –
- Filed by an existing U.S. business enterprise when it expands its operations to include a new business facility.
- Filed to report the purchase of U.S. real estate (or construction of previously owned U.S. real estate) for expansion purposes.
- The form does not need to be filed if the total cost of the expansion is $3 million or loss.
- Form BE-13E – The form is filed by a U.S. business enterprise that previously filed a Form BE-13B or BE-13D and the project is still under construction. This form is used to report annual cost updates. It appears that this form is only required if the BEA sends a request to the respondent.
- Form BE-13 Claim for Exemption – Filed if one of the above forms would have been required to be filed if the $3 million reporting requirement had been met.
Consolidated reporting is required by a group of U.S. business enterprises. Two or more U.S. business enterprises are considered to be part of a group if one enterprise owns, directly, more than 50 percent of one or more other enterprises (by vote). Chains of U.S. business enterprises are included in the group to the extent a member of a group meets the more than 50 percent ownership requirement with respect to other U.S. business enterprises. Minority-owned U.S. business enterprises are excluded from the consolidated filing group, as are foreign business enterprises that are owned by a U.S. business enterprise (i.e., a foreign subsidiary).
Alvarez & Marsal Says:
The requirements to file Forms BE-13 will come as a surprise to many people. The requirements have never been heavily publicized. Completing the forms can be quite onerous. For example, Form BE-13A is thirteen pages long and contains 38 questions. The BEA estimates that it will take the average respondent 2.5 hours to complete the form. In our experience, it is more time-consuming than that.