Bureau of Economic Analysis Mandatory 2023 BE-12 Survey Reporting Requirement Deadline Approaches

The Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce requires an incorporated U.S. business enterprise¹ or an equivalent unincorporated U.S. business enterprise in which a foreign person or entity owns or controls, directly or indirectly, more than 10% of the voting securities (a “Direct Investment”) to file a report on its BE-12 Benchmark Survey of Foreign Direct Investment in the United States (the “BE-12 Survey”) for the fiscal year 2022. The BE-12 Survey is due by May 31, 2023, or June 30, 2023, if submitting through the BEA’s eFile system. Official BE-12 forms and instructions can be found here, on the BEA website. BE-12 is a benchmark survey, which requires a company that meets the filing requirements for the BE-12 to file the form, regardless of whether the company has been contacted in advance by the BEA.²

Purpose and Applicability

The BE-12 Survey is a mandatory survey conducted once every five years by the BEA under the International Investment and Trade in Services Survey Act. The purpose of the BE-12 Survey is to obtain data regarding a U.S. business enterprise with a foreign Direct Investment (such U.S. business enterprise, a “U.S. Affiliate”), the foreign persons that own a Direct Investment in the U.S. business enterprise (each a “Foreign Parent”)³ and the ownership of, and transactions between, the U.S. Affiliate and each Foreign Parent.

The BE-12 Survey collects a large amount of information regarding (i) the Direct Investment and (ii) “enterprise-level information” regarding the business enterprise⁴ in which the Direct Investments were made.

Private Funds

Even if a private fund⁵ is the U.S. Affiliate, private fund U.S. Affiliates would be exempt from filing a BE-12 Survey if all of the following apply:

• The U.S. business enterprise is a private fund.
• The private fund does not own, directly or indirectly through another business enterprise, an “operating company” (being a business enterprise that is not a private fund or a holding company⁶ in which the Foreign Parent owns at least 10% of the voting interest).
• If the Foreign Parent owns the private fund indirectly (through one or more other U.S. business enterprises), there are no U.S. “operating companies” between the Foreign Parent and the indirectly-owned private fund.

For example, a private equity fund that owns 50% of the voting securities of a U.S. operating company organized in the United States would have to file a BE-12 Survey if the private equity fund is organized in the United States and it has a foreign general partner. In the case of partnerships, the general partner generally controls a limited partnership and, therefore, is presumed to have 100% of the voting interests in the limited partnership.⁷

The information reported by the general partner of a limited partnership in the BE-12 Survey may overlap for some of the information reported by limited partners in the Treasury International Capital (TIC) forms filed with the Federal Reserve Bank of New York, but the BE-12 Survey is broader in scope of reported information. Additional guidance and explanations regarding private fund reporting can be found on the BEA website here.

Version of Form BE-12

The BE-12 Survey consists of four forms. The form that a U.S. Affiliate must file is determined by the size of the U.S. Affiliate⁸ and its percentage of foreign ownership, as follows:

BE-12A is filed for a U.S. Affiliate that is majority-owned (50% or more) by its Foreign Parents and has total assets (do not net out liabilities), sales or gross operating revenues (excluding sales taxes) or net income (loss) that exceeds $300 million (positive or negative) at the end of its 2022 fiscal year.

BE-12B is filed for a U.S. Affiliate that satisfies one of the following criteria:

• It is majority-owned (50% or more) by Foreign Parents, and the U.S. Affiliate satisfies any of the following: (i) total assets (without netting out liabilities), (ii) sales or gross operating revenues (excluding sales taxes) or (iii) net income (or loss) that exceeds $60 million but none of these items exceed $300 million.
• It is minority-owned (at least 10% but less than 50%) by Foreign Parents with one of total assets (do not net out liabilities), sales or gross operating revenues (excluding sales taxes) or net income (loss) that exceeds $60 million.

BE-12C is filed for a U.S. Affiliate that is majority-owned or minority-owned by Foreign Parents and none of total assets (do not net out liabilities), sales or gross operating revenues (excluding sales taxes) or net income (loss) was greater than $60 million.

BE-12 Claim for Not Filing is filed if (1) foreign ownership of the U.S. business has fallen below 10% in 2022; (2) the U.S. business has been fully consolidated or merged into another U.S. business, (3) the U.S. business has been dissolved or liquidated; or (4) the U.S. business was contacted by BEA but is not required to file.

A helpful flowchart explaining which BE-12 form to file is provided on the BEA website here.

Real Estate

Foreign-owned U.S. real estate is considered a U.S. Affiliate for purposes of the BE-12. “Real estate” includes businesses engaged in (1) renting or leasing real estate for others; (2) managing real estate for others; (3) selling, buying or renting real estate for others; and (4) providing real estate related services. This includes:

• Single unit rental properties which the owners use for part of the year and rent out the rest of the time.
• A multi-unit residential/commercial property which leases out apartments and/or retail space.
• Equity REITs that are primarily engaged in leasing buildings or other real estate properties to others.

This excludes:

• S. residential real estate held by a corporation for the personal use of the corporation owner(s).
• S. residential real estate that is an owner’s primary residence that is leased while the owner is out of the United States.

The BEA has provided additional guidance on reporting real estate holdings here.

Digital Economy Activities

This year, the BEA added questions regarding “digital economy activities” to the BEA form. These questions appear on page 9 of the BE-12A and cover activities such as cloud computing, digital intermediation services, digital ordering and digital delivery. A detailed guide to these definitions and guidance on how to report for digital economy activities can be found here.

Filing and Penalties

The BEA allows Reporters to mail in the appropriate forms of the BE-12 Survey to the U.S. Department of Commerce or, alternatively, file their BE-12 Survey electronically on the BEA website. All Reporters must file the appropriate forms of the BE-12 Survey by May 31, 2023, if the U.S. Affiliate is filing electronically using the BEA’s eFile system, the deadline is extended to June 30, 2023. Reasonable requests for extensions may be granted by the BEA. Extension requests must be filed by May 31, 2023, using the BEA’s eFile system.

The failure of a U.S. Affiliate to fulfill its reporting obligation could result in a civil penalty or injunctive relief commanding such U.S. Affiliate to comply, or both. The BEA may assess civil penalties ranging from $5,580 to $55,808. However, whoever willfully fails to file a BE-12 Report could be fined up to an additional $10,000 and, if an individual, may be imprisoned for not more than one year, or both. Any officer, director, employee or agent of any corporate U.S. Affiliate who knowingly participates in such violations, upon conviction, may be punished by a like fine, imprisonment or both.

Confidentiality

Information filed as part of the BE-12 Survey is available only to officials and employees (including consultants and contractors and their employees) of agencies designated to perform functions under the Act. No information contained in reports may be published or made available in such a manner that the person to whom the information relates can be specifically identified.

Questions?

If you need assistance or have questions regarding this alert, please contact your Akin relationship attorney or one of the authors.

¹ “Fully consolidated U.S. domestic business enterprise” means (i) a U.S. corporation whose voting securities are not owned more than 50% by another U.S. corporation, and (ii) proceeding down each ownership chain from that U.S. corporation, any U.S. corporation (including “foreign sales corporations,” as defined in the instructions, located in the United States) whose voting securities are more than 50% owned by the U.S. corporation above it. This consolidation excludes foreign branches and all other foreign affiliates.

² As this is a “benchmark year,” filers who typically file annual BE-15 forms will instead be required to file the BE-12.

³ All direct and indirect lines of ownership held by a Foreign Parent in a given U.S. business enterprise must be aggregated to determine if the Foreign Parent has a Direct Investment in the U.S. business enterprise.

⁴ “Business Enterprise” means any organization, association, branch or venture which exists for profit-making purposes or to otherwise secure economic advantage, and any ownership of any real estate.

⁵ The term “private fund” is defined as “the same class of financial entities defined by the Securities and Exchange Commission as private funds on form PF: ‘any issuer that would be an investment company as defined in section 3 of the Investment Company Act of 1940 but for section 3(c)(1) or 3(c)(7) of. . . [that] Act.’”

⁶ A “holding company” is a business enterprise that is engaged in holding the securities or financial assets of companies and enterprises for the purpose of owning a controlling interest in them or influencing their management decisions. Businesses in this industry do not manage the day-to-day operations of the firms whose securities they hold. To be considered a holding company, income from equity investments must be more than 50% of total income. A business that engages in holding company activities but generates more than 50% of its total income from other activities is not a holding company under BEA standards. Holding companies in an ownership chain that only includes private funds and/or other holding companies are considered to be in a chain with no “operating companies”—i.e., companies that are not private funds or holding companies.

⁷ The determination of the percentage of voting interest “owned” by a general partner is based on control of the partnership, instead of the percentage of ownership in the partnership’s equity. For example, a general partner of a limited partnership with two general partners with equal control rights would be a 50% owner of voting securities.

⁸ A U.S. Affiliate must file on a fully consolidated domestic U.S. basis, including in the full consolidation all U.S. business enterprises proceeding down each ownership chain whose voting securities are more than 50% owned by the U.S. business enterprise. The fully consolidated entity is considered one U.S. Affiliate.