The U.S. Department of Commerce's Bureau of Economic Analysis (BEA) recently issued its mandatory five-year benchmark survey to obtain data on direct investment abroad by U.S persons and businesses. The survey, known as the BE-10, must be filed by U.S. persons or businesses (referred to as "Reporters") holding, directly or indirectly, 10 percent or more of the voting stock of a foreign business at the end of the Reporter's 2019 fiscal year (FY2019). Thus, the reporting period is only one year. Reporters must file regardless of whether they are contacted by BEA. Completed surveys are due to BEA no later than May 29, 2020 (or no later than June 30, 2020, for Reporters filing 50 or more affiliate reports). Civil and criminal penalties may apply to Reporters that fail to make required filings. Requests for an extension must be submitted to BEA electronically through its eFile system. BEA uses the BE-10 surveys to produce statistics on the scale and effects of U.S.-owned business activities outside of the United States. An overview of the BE-10 survey follows.

A. Who Is Required to File as a Reporter?

The filing obligation applies to any U.S. person that held, directly or indirectly, 10 percent or more of the voting stock of a foreign business (including an incorporated foreign business enterprise or an equivalent interest in an unincorporated foreign business enterprise), at the end of the Reporter's FY2019. A U.S. person includes both natural persons resident in and entities in the United States, as well as persons otherwise subject to U.S. jurisdiction.¹ A foreign business in which a U.S. person holds 10 percent or more of the voting shares is a "Foreign Affiliate" for purposes of the BE-10.

If a U.S. Reporter is engaged in renting or leasing foreign real estate to others, or managing, buying, selling, or renting foreign real estate for others, then the real estate assets or investments are likely considered a Foreign Affiliate, and a BE-10 survey may be required. BEA's guidance on Reporting Real Estate Investments on the 2019 BE-10 Survey provides additional background on covered real estate investments.

A U.S. business that is itself a subsidiary of a foreign entity must file the BE-10 survey if required by the rules explained above, notwithstanding that the U.S. business has a foreign parent. While BEA may notify some Reporters of their obligation to file the BE-10 survey, as noted above, qualifying Reporters must file whether or not they are contacted by BEA.

B. The BE-10 Survey

The BE-10 survey consists of a form for the Reporter, the BE-10A, and forms for the Foreign Affiliates, the BE-10B, BE-10C, and BE-10D. To reduce redundant reporting, the Reporter can consolidate a group of foreign business enterprises as a single Foreign Affiliate for reporting purposes if the individual entities satisfy all of the following criteria:

• They are located in the same country.
• They are in the same 4-digit International Surveys Industry (ISI) or they are integral parts of the same business operation.
• They are owned by the same immediate parents with the same ownership percentages or, if such ownership percentages are not the same, one of the business enterprises is wholly owned by the other.

Reporters should consolidate the holdings in Foreign Affiliates of all U.S. subsidiaries in their corporate family whose voting securities are more than 50 percent owned by the U.S. business enterprise above, and only the top-level U.S. business enterprise files as the Reporter.

Also, this year's BE-10 surveys, in both the BE-10A and BE-10B, include questions to measure the economic impact of digital ordering and delivery of products and services and to distinguish digital intermediation platforms—which do not take ownership of the products or services they sell—from more traditional direct-to-consumer sales portals. To assist Reporters in responding to these new questions, BEA issued Guidance on Digital Economy Questions for the 2019 BE-10 Benchmark Survey of U.S. Direct Investment Abroad.

        a. Step One: The BE-10A Report for the Reporter

The BE-10A covers the Reporter. Parts I, II, III, and V of the BE-10A, which collect basic identification, industry, employment, financial, operating and import/export data on the Reporter, must always be completed. Part IV only needs to be completed if the Reporter satisfies any of three "Size Criteria," which are measured by (i) net income (or loss) after income taxes, or (ii) total assets, or (iii) sales or gross operating revenues, excluding sales taxes. More particularly, for the BE-10A, the Size Criteria are met when, at the end calendar year or 2019 or the end of the Reporter's FY 2019, there was greater than $300 million (positive or negative) in (i) net income (or loss) after provision for income taxes; or (ii) total assets; or (iii) sales or gross operating revenues, excluding sales taxes. The business operations and financial figures of Foreign Affiliates are excluded for the purposes of determining the Size Criteria.

        b. Step Two: The BE-10B, BE-10C, and BE-10D Reports for the Foreign Affiliates

For each Foreign Affiliate, the Reporter must file either a BE-10B, BE-10C, or BE-10D. Determining which form to file depends in large part on the Size Criteria discussed above (with different thresholds as described below), and whether the Reporter is the majority owner of the Foreign Affiliate. When calculating Size Criteria for a Foreign Affiliate, the Foreign Affiliate's total assets; sales or gross operating revenues (excluding sales taxes); and net income (or loss) are used - do not prorate the calculations based on the Reporter's percentage holding in the Foreign Affiliate. Further, a Foreign Affiliate owned by more than one U.S. Reporter must be treated as majority-owned by all U.S. Reporters if the combined ownership by those U.S. Reporters exceeds 50 percent.

• The BE-10B is required if the Foreign Affiliate is majority-owned (i.e., more than 50 percent) by the Reporter and any one of the Size Criteria exceeded $80 million (positive or negative) at the end of calendar year 2019 or the end of the Foreign Affiliate's 2019 fiscal year. The BE-10B closely mirrors the BE-10A and is the most detailed of the three Foreign Affiliate reports.
• The BE-10C is for minority-owned Foreign Affiliates for which any one of the Size Criteria exceeded $25 million, as well as for majority-owned Foreign Affiliates for which any one of the Size Criteria exceeded $25 million but none of the Size Criteria exceeded $80 million.
• The BE-10D is for Foreign Affiliates for which none of the Size Criteria exceeded $25 million, regardless of ownership status, and multiple Foreign Affiliates may be listed on a single BE-10D. Only basic information about each Foreign Affiliate is required. However, if a Foreign Affiliate that qualifies for the BE-10D is itself the owner or parent of another Foreign Affiliate required to file a BE-10B or 10C report, then such parent Foreign Affiliate must likely file a BE-10C. This exclusion operates, for example, to require a foreign holding company with de minimis operations of its own to file the more detailed BE-10C if it controls another Foreign Affiliate that is itself required to also file the BE-10C.

A qualifying Foreign Affiliate owned directly and/or indirectly by more than one Reporter (e.g., a joint venture or equivalent enterprise) presents some complexities. The Reporter with the highest percentage of ownership must file a complete report on the appropriate form, and the other Reporters with total direct and indirect ownership of 10 percent or more must file partial reports that generally omit redundant financial and operational information about the Foreign Affiliate. If there is no Reporter that owns a greater percentage of the Foreign Affiliate, then the Reporters must decide which one will file the complete report, and the others must file partial reports. Additional information on partial reporting can be found in the BE-10 Instruction Booklet.

C. Penalties

BEA may impose civil and/or criminal penalties for failure to submit the BE-10 survey. Civil penalties may include fines ranging from approximately $4,800 to just under $50,000. BEA also has authority to seek a restraining order, and temporary or permanent injunctions commanding the U.S. person to comply. Criminal penalties for willful failure to file include fines up to $10,000 and imprisonment up to one year for individuals, including officers, directors, employees, or agents of a corporation who knowingly participate in a violation. While BEA historically has not imposed penalties, BEA may become more aggressive in penalizing companies for not filing as these reports recently appear to be of more interest to the U.S. government.

Additional information, including the BE-10 survey reports in pdf format and a link to the BEA online filing portal, can be found here.

¹ See Section III.D of the BE-10 Instruction Booklet for guidance on "persons otherwise subject to U.S. jurisdiction."