The 2017 Benchmark Survey of Foreign Direct Investment in the United States (the “BE-12”) must be filed with the Bureau of Economic Analysis (the “BEA”) by May 31, 2018. A response is required from entities subject to the reporting requirements of the BE–12, whether or not they are contacted by BEA.

What is the BE-12?
The BEA of the U.S. Department of Commerce conducts quarterly, annual and five-year benchmark surveys with respect to foreign direct investment in the United States. The purpose of the BE-12 is to obtain data on the financial and operating characteristics of “U.S. affiliates” (as described below) and on positions and transactions between U.S. affiliates and their “foreign parent” (as described below). The data is used to determine and quantify the size and economic significance of foreign direct investment in the United States, measure changes in such investment between benchmark surveys, and assess the impact of foreign direct investment in the United States on the U.S. economy. The BE-12 is conducted every five years in lieu of the BE-15 annual survey.

“Direct investment” is an investment in which a resident of one country obtains a degree of influence over the management of a business enterprise in another country. The criterion used to define direct investment is ownership of at least 10% of the voting securities of an incorporated business enterprise or the equivalent interest in an unincorporated business enterprise. Direct investment transactions and positions can be in the form of equity or debt between affiliated entities. While direct investment is typically reported to the BEA, the BEA recently implemented two exceptions that, if applicable, require that reporting of such direct investment be done on Treasury International Capital (“TIC”) reports carried out by the Federal Reserve Bank of New York on behalf of the Department of the Treasury, as further described below.

Who Must Report
Entities not contacted by the BEA have no reporting responsibilities for the quarterly and annual reporting of foreign direct investment in the United States; however, a response with respect to the 2017 BE-12 is required from all entities subject to the reporting requirements of the BE-12, whether or not such entities have been contacted by the BEA.

A U.S. business enterprise (called a “U.S. affiliate”) in which a foreign person (called a “foreign parent”) owns directly and/or indirectly a 10% or more voting interest (or the equivalent) may be subject to the BE-12 reporting requirements. The BE-12 is comprised of four form variations. The version that must be filed by each U.S. business enterprise that was a U.S. affiliate of a foreign person at the end of the U.S. business enterprise’s fiscal year that ended in calendar year 2017 is determined by the following reporting criteria:

• A BE-12A is required where the U.S. affiliate is majority-owned (50% or more) with total assets, sales or gross operating revenues, or net income (loss) greater than $300 million.
• A BE-12B is required where the U.S. affiliate is (i) majority-owned with total assets, sales or gross operating revenues, or net income (loss) greater than $60 million, but no one of these items was greater than $300 million; or (ii) minority-owned (at least 10%, but less than 50%) with total assets, sales or gross operating revenues, or net income (loss) greater than $60 million (positive or negative).
• A BE-12C is required where the U.S. affiliate is majority- or minority-owned and none of total assets, sales or gross operating revenues, or net income (loss) was greater than $60 million.
• Under certain circumstances, an entity may be required to file a BE-12 Claim for Not Filing.

The BE-12 filing of a U.S. reporter must cover the U.S. reporter’s “fully consolidated U.S. domestic business enterprise.” This consists of a U.S. business enterprise more than 50% of whose voting securities are not owned by another U.S. business enterprise and, proceeding down each ownership chain from that U.S. business enterprise, any U.S. business enterprise whose voting securities are more than 50% owned by the U.S. business enterprise above it.

Application in the Fund Context
The following two exceptions with respect to direct investment are reported on TIC reports rather than to the BEA:

• debt between selected affiliated financial intermediaries; and
• equity in and debt with certain private funds.

Debt between selected affiliated financial intermediaries is not classified as direct investment because it is not considered to be so strongly connected to the direct investment relationship. Investment funds and investment advisers/managers are considered financial intermediaries. If both the U.S. entity and the affiliated foreign entity are financial intermediaries, all of their cross-border debt positions — both affiliated and unaffiliated — are to be reported on TIC reports and excluded from BEA direct investment surveys.

Under the exception for private funds, investments by U.S. entities in a 10% or more voting interest in a foreign private fund and investments by foreign entities in a 10% or more voting interest in a U.S. domiciled private fund should be reported on TIC reports and excluded from BEA direct investment surveys if they meet BOTH of the following criteria:

• the private fund does not own, directly or indirectly through another business enterprise, an “operating company” — i.e., a business enterprise that is not a private fund or a holding company[1] — in which the U.S. or foreign parent owns at least 10% of the voting interest; and
• if the private fund is owned indirectly (through one or more other business enterprises), there are no “operating companies” between the U.S. or foreign parent and the indirectly owned private fund.

How to Report
The BE-12 may be filed electronically or in hard copy.

Due Dates
A completed BE-12, or Claim for Not Filing, covering a reporting company’s fiscal year ending in calendar year 2017 is due no later than May 31, 2018 (or by June 30, 2018, for reporting companies that use the BEA’s eFile system).

Confidentiality
The International Investment and Trade in Services Survey Act[2] provides that reports made to the BEA are confidential and may be used only for analytical or statistical purposes. Without the filer’s prior written permission, the information filed in a report cannot be presented in a manner that allows it to be individually identified. A report cannot be used for purposes of taxation, investigation, or regulation. Copies retained are immune from legal process. Per the Cybersecurity Enhancement Act of 2015, data is protected from cybersecurity risks through security monitoring of the BEA information systems.

Penalties
An entity that fails to file a required Form BE-12 may be subject to civil penalties and, if found to have wilfully failed to file a required Form BE-12, may be subject to criminal penalties. An officer, director, employee, or agent of an entity who knowingly participates in a wilful failure to file may also be subject to criminal penalties.

Helpful Links
The BEA publishes a helpful guide to direct investment surveys that can be found here: https://www.bea.gov/surveys/pdf/a-guide-to-bea-direct-investment-surveys.pdf.

Additionally, the BEA recently published FAQs with respect to private funds that can be found here: https://www.bea.gov/surveys/privatefunds/index.htm.

Notes:

[1] For this purpose, “private fund” refers to 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.” 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% percent 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. 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.
[2] P.L. 94–472, 90 Stat. 2059, 22 U.S.C. 3101–3108, as amended.