Sandra Romaszewski writes:
Although not a new issue or requirement, many U.S. companies, including emerging companies and their parent companies, affiliates and investors, may not be aware of certain reporting requirements required by the International Investment and Trade in Services Survey Act (the Act). In general terms, the Act governs the reporting of investments made in the U.S. by foreign persons and investments made by U.S. persons abroad. (Note that there are other specific filing requirements for airline operators, ocean and freight carriers, insurance companies, and financial service providers.) The Bureau of Economic Analysis (BEA) within the U.S. Department of Commerce is tasked with collecting the data and reporting the statistics.
U.S. Direct Investment Abroad
All U.S. persons (in the broad sense, including individuals or business enterprises) who own, directly or indirectly, 10% or more of the voting securities or equivalent interest in a foreign business enterprise, are subject to the BEA’s reporting requirements. This includes U.S. private equity funds that own foreign affiliates directly or through U.S. portfolio companies that they control.
Foreign Direct Investment in the U.S.
All U.S. business enterprises in which a foreign person (again, in the broad sense, including an individual or business enterprise) owns, directly or indirectly, 10% or more of the voting securities or equivalent interest in a U.S. business enterprise, are also subject to the BEA’s reporting requirements. This includes foreign ownership of any real estate in the U.S. except residential real estate held exclusively for personal use and not for profit-making purposes.
Reporting is Mandatory But Information is Kept Confidential
Reporting to the BEA is mandatory whether or not companies are contacted by the BEA. Reporting requirements include quarterly surveys, annual surveys, and benchmark surveys that must be completed every 5 years. Also, for new foreign direct investment in the U.S., an initial report must be filed no later than 45 days after the date a foreign direct investment in the U.S. is made. Foreign direct investment includes any of the following by a foreign person: (1) the establishment of a new U.S. legal entity, (2) the expansion of U.S. operations, or (3) the acquisition of a U.S. business enterprise.
Types of data collected by the BEA may include balance sheets, income statements, sales figures, taxes, employment information, research and development expenditures, capital expenditures, and exports and imports. The Act protects the confidentiality of the data reported to the BEA, and the survey data can only be used for analytical and statistical purposes. Exemptions from filing are available if any of the exemption criteria is met, but a Claim for Exemption from filing must still be filed with the BEA for each survey.
Penalties for Non-Compliance
What happens if companies do not file the mandatory BEA surveys? Companies may be subject to fines and penalties and may be subject to governmental orders directing compliance. Even worse, a company’s willful failure to report may lead to a more significant fine and an individual’s willful failure to report may lead to a fine, imprisonment for not more than 1 year, or both. To top it off, any officer, director, employee or agent of any company who or which knowingly participates in such violations may be punished by fines, imprisonment, or both, upon conviction.
It goes without saying that all companies, including emerging companies which rely heavily on their Boards of Directors and management teams, should adhere to the BEA’s filing requirements and seek advice from their legal and tax professionals to avoid fines and/or imprisonment for non-compliance.
Sandra A. Romaszewski is an associate in the firm’s Warrington, PA office.