The Bureau of Economic Analysis (BEA) conducts various surveys of U.S. multinational companies and U.S. affiliates of foreign enterprises to generate statistical information regarding the global business activities of U.S. based companies and the impact of foreign investment by non-U.S. based companies. Generally, individuals and entities are only required to complete and file a BEA survey form when certain financial thresholds are exceeded or when specifically requested by the BEA. Every five years, however, the BEA requires all U.S. persons that own, directly or indirectly, 10% or more of the voting equity of a foreign affiliate to file a Form BE–10 (regardless of whether they are specifically requested to do so by the BEA). (Similarly, every five years the BEA requires disclosure on Form BE–12 with respect to foreign direct investment in the United States by all U.S. affiliates subject to the requirements, regardless of whether they have been contacted by the BEA. These forms will next be due in 2023 and are beyond the scope of this alert.)
However, if an investment meets the requirement of the private fund exemption, the U.S. person need not file a BE–10 report for that foreign investment unless specifically requested to do so by the BEA. Generally, an investment meets the requirement of the private fund exemption if the investment is less than a 10% voting interest in a foreign private fund. (For additional information regarding the requirements of the private fund exemption, please visit the following website: https://apps.bea.gov/surveys/privatefunds/ )
Based on the timing of the five-year BE–10 filing cycle, as more fully described below, Form BE–10 filings will be coming due later this quarter. These filings include the following primary disclosures:
- Identifying information
- Industry Code
- Ownership percentage (indirect and direct) of the person or entity reporting
- Total assets and liabilities
- Total sales or gross operating revenues
- Net income or loss after foreign income tax is paid
Foreign Affiliates and U.S. Persons
With respect to the BE–10 survey, a “U.S. person” means any individual, branch, partnership, associated group, association, estate, trust, corporation or other organization that is resident in, or subject to, the jurisdiction of the United States. A “foreign affiliate” means an affiliate located outside the United States in which a U.S. person has direct investment. In general, a U.S. person’s foreign operation or activity is considered a foreign affiliate if it is legally or functionally separable from the domestic operations or activities of the U.S. person. In most cases, it is clear whether the foreign operation or activity constitutes an affiliate. for example, if the operation or activity is incorporated abroad, it is always considered a foreign affiliate. Even if it is unincorporated, the foreign operation or activity is usually legally or functionally separable from the U.S. person’s domestic operations or activities. While not dispositive, the following characteristics suggest that an operation or activity is probably not a foreign affiliate:
- It engages only in sales promotion or public relations activities on behalf of the U.S. person;
- It conducts business abroad only for the U.S. person’s account, not for its own account;
- It has no separate financial records that allow the preparation of financial statements;
- its expenses are paid by the U.S. parent;
- It is not subject to foreign income taxes; and
- It has limited physical assets or few employees permanently located abroad.
Types of BE–10 Forms to be Filed
There are five types of BE–10 Forms, and the appropriate form depends on the characteristics of the foreign investment:
- Form BE–10A. This form is filed for the fully consolidated U.S. domestic business enterprise of a U.S. reporter that has a reportable foreign affiliate (i.e., an investment in a foreign affiliate that does not come within the private fund exemption).
- Form BE–10B. This form is filed for majority-owned foreign affiliates of a U.S. parent that have assets, sales or net income of more than $80 million (positive or negative)
- Form BE–10C. This form is filed for minority-owned foreign affiliates and for majority-owned foreign affiliates of U.S. parents that have assets, sales or net income of more than $25 million (positive or negative) but for which none of these exceed $80 million (positive or negative). It is also filed for foreign affiliates that have assets, sales or net income of $25 million or less (positive or negative) and that are foreign affiliate parents of other foreign affiliates that are filing Form BE–10B or Form BE–10C.
- Form BE–10D. This form is filed for foreign affiliates that have assets, sales or net income of less than $25 million (positive or negative) and that are not foreign affiliate parents of other foreign affiliates that are being reported on Form BE–10B or Form BE–10C.
- Form BE–10 Claim for Not Filing. This form is filed if a U.S. person meets any of the following criteria:
- The U.S. person does not own or control, directly or indirectly, 10% or more of the voting securities of an incorporated foreign business enterprise or an equivalent interest in an unincorporated foreign business enterprise (including a branch or real estate held for other than personal use).
- The U.S. person that owns or controls, directly or indirectly,10% or more of the voting securities of an incorporated foreign business enterprise or an equivalent interest in an unincorporated foreign business enterprise (including a branch or real estate held for other than personal use), but this person is a citizen of a foreign country who is residing in the U.S. as a result of official employment by a foreign government (including the immediate family of the person) or who has been, or expects to be, residing in the U.S. for less than one year, or who is fully consolidated in the report of another U.S. person.
Deadline and Penalties
The deadline to file Form BE–10 depends on the number of BE–10 Forms (BE–10B, BE–10C and/or BE–10D) an individual or entity is required to file. If filing fewer than 50 forms (a separate form is required for each affiliate), the deadline for the fully completed and certified BE–10 report is May 29, 2020. If filing 50 or more forms, the deadline is June 30, 2020. It is important to note that the failure to file a Form BE–10 with the BEA can lead to civil penalties of nearly $50,000 and criminal penalties of up to one year in prison.
For additional information and access to the BE–10 Forms, please visit the following website: https://www.bea.gov/BE-10-benchmark-survey-us-direct-investment-abroad.
To read the original article by Cameron Williamson, Heyward Armstrong and Amy Batten of Ally Law member firm Smith Anderson, please click here.