For a U.S. business enterprise that has or recently had 10% foreign ownership, May 31, 2018 is an important filing date. That Thursday is the general reporting deadline for submitting to the U.S. Department of Commerce, Bureau of Economic Analysis (“BEA”), a mandatory survey (Form BE-12) which details the extent of foreign investment in a U.S. business, or U.S. affiliate/division of a foreign business. This “benchmark” survey occurs every five years.

Many U.S. companies do not know or have forgotten about the mandatory BE-12 report filing requirement. Filing the report is NOT optional. To be a required respondent to the BE-12 survey, it is immaterial whether a business was directly contacted by the BEA. The relevant rules make clear that applicable entities are “required to respond whether or not they are contacted by BEA.” Direct Inv. Surveys: BE-12, Benchmark Survey of Foreign Direct Inv. in the United States, 82 Fed. Reg. 58,551 (Bureau of Econ. Analysis Dec. 13, 2017), available here.

The threshold criteria for required reporting is whether a foreign person or entity owned or controlled, directly or indirectly, 10% or more of the U.S business enterprise. After the minimum 10% ownership requirement is met, other filing particulars are based on whether the foreign interest is a majority owner and the size of the U.S. business enterprise. The “Which 2017 BE-12 Form to File?” diagram below helps explain the requirements.

Failure to timely report can result in up to a $25,000 fine for the business, and, in some instances, jail time for the individuals involved. See 22 U.S.C. § 3105; 15 C.F.R. § 801.6. Further, the reporting requirement may be taken seriously by the Trump Administration, given its oft-expressed concerns about foreign competition and inappropriate foreign investment in the United States.

The BE-12 data-gathering requirements can be much more burdensome than estimated by the government, so it is important to address these requirements promptly. There is a procedure to seek an extension and, while extensions are not available as a matter of right and the acceptable bases for granting an extension are not well-defined, reasonable extension requests are more likely to be viewed favorably if filed before the deadline.

The BE-12 survey information is to be used solely by the BEA. BEA is the federal government’s economic statistics agency which is responsible for determining the United States’ Gross Domestic Product (“GDP”) (currently over $19 trillion per year), and other important economic indicators such as the balance of payments. Gathering this information is crucial to understanding what is going on with the U.S. economy for Government policy-makers and decision-makers, regulators, international organizations, and private actors.  

Part of BEA’s work, and a key aspect of America’s economic outlook, is determining Foreign Direct Investment in U.S. businesses (“FDI”) (currently at about $450 billion per year). FDI is particularly controversial in this Administration.  In order to accurately gauge FDI, BEA requires, pursuant to its authority under the amended International Investment and Trade in Services Survey Act of 1976, certain U.S. businesses with foreign entity ownership to complete and submit surveys like the BE-12. These surveys include but are not limited to: Form BE-13 (survey of new FDI); Form BE-605 (quarterly reporting of FDI); Form BE-15 (annual reporting of FDI); and, as discussed, Form BE-12 (the big once-every-five-years benchmark survey).

The rules governing the BE-12 reporting requirements are found at 15 C.F.R. § 801.10. Restating the rules in a more simplified way:

• If a company is larger than $300 million in size (measured by assets, revenue, or net income), and was majority foreign-owned at some point in 2017, it likely must file a Form BE-12A;
• If a company is more than $60 million in size, but not more than $300 million, and was majority foreign-owned at some point in 2017, it likely must file a Form BE-12B;
• Alternatively, if a company was not majority-foreign-owned in 2017, but larger than $60 million, it likely must also file a Form BE-12B; and  
• If a company meets the minimum threshold of 10% foreign ownership at some point in 2017, and is not more than $60 million in size, it likely must file Form BE-12C.

To help companies navigate the BE-12 reporting requirements, the BEA publishes the diagram to the right as part of the Form BE-12 instructions, titled “Which 2017 BE-12 Form to File?”

Although the general filing deadline for the BE-12 is Thursday, May 31, 2018, the regulation makes clear that a filer has until Saturday, June 30, 2018, if the business files through BEA’s efile system. A filer’s submission will be kept confidential, is supposed to be used only for “analytical or statistical purposes within the United States Government[,]” 22 U.S.C. § 3104(c)(1), and “shall be available only to officials and employees (including consultants and contractors and their employees) of agencies designated by the President to perform functions under the [International Investment and Trade in Services Survey] Act[,]” 15 C.F.R. § 801.5(a). Thus, the Government has provided legal assurance that the information is supposed to be used solely to help out the economists.   

According to BEA’s Paperwork Reduction Act burden statement for filling out the survey, BEA has estimated that it will take the average respondent 11 hours to complete the appropriate BE-12 Form. See 82 Fed. Reg. at 58,552. For most respondents, BEA’s time burden assessment is likely a significant underestimate, and for some, a gross underestimate. In reality, depending on the organization of the business, and the assets involved, completing the form so that it is “substantially accurate” may require hundreds of hours. See Form BE-12B. Therefore, with size and complexity in mind, a business should allot adequate preparation time, including, as necessary, time to consult with legal counsel. 

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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