Financial services providers that have non-U.S. affiliates should evaluate whether they are required to file the Benchmark Survey of U.S. Direct Investments Abroad (BE-10). Even if a firm has reported on BE-10 in the past, recent changes to the survey’s treatment of private funds (as described below) may have altered the firm’s reporting obligations. In addition, the U.S. Department of Commerce’s Bureau of Economic Analysis (BEA) has provided guidance for firms facing disruptions in light of the COVID-19 pandemic.
What is BE-10?
In 2020, the BEA will administer its next BE-10 survey.1 This mandatory survey is conducted once every five years and measures U.S. direct investment abroad. “Direct investment” refers to direct or indirect ownership or control of at least 10% of the voting stock (or equivalent interest) of a non-U.S. business enterprise (collectively, Foreign Affiliates). BE-10 is the BEA’s most comprehensive survey regarding financial and operating data of U.S. multinational enterprises and their Foreign Affiliates. With some exceptions (discussed below), reporting is required for any U.S. business enterprise that has direct investment (i.e. directly or indirectly owns 10% or more of the voting securities) of a non-U.S. business enterprise. Many U.S. asset managers will have reporting obligations.
What is BE-10 Data Used For?
The U.S. government uses the economic data collected in this survey in the preparation of the government’s published macroeconomic surveys and to inform its economic and trade policies. This survey is not an instrument of market oversight, but instead is used for informational purposes, and the data collected is published on an aggregated, anonymous basis. The BEA uses BE-10 to produce statistics on the scale and effects of US-owned business activities abroad.
When Is BE-10 Due?
If required to file BE-10, a reporter must submit the report by:
- May 29, 2020 if required to complete fewer than 50 Forms BE-10B, BE-10C, and/or BE-10D (i.e. there are fewer than 50 Foreign Affiliates to report)
- June 30, 2020 if required to complete 50 or more Forms BE-10B, BE-10C, and/or BE-10D (i.e. there are 50 or more Foreign Affiliates to report)
The report should reflect holdings as of December 31, 2019. Firms that file the BE-11 survey on an annual basis will file BE-10 in lieu of BE-11 this year.
Who Needs to File BE-10?
A U.S. person is required to file BE-10 if the U.S. person had a Foreign Affiliate (i.e. a non-U.S. business enterprise in which the U.S. person has a direct investment) at the end of the U.S. person’s 2019 fiscal year (for purposes of this OnPoint, such U.S. are referred to as U.S. Reporters). In contrast to certain other BEA surveys, BE-10 must be filed by all U.S. Reporters, regardless of whether or not they have been contacted by BEA.
A U.S. Reporter must file on a fully consolidated domestic U.S. basis, which starts with the top-tier U.S. entity in an organization and includes all of its U.S. entities, proceeding down each ownership chain whose voting securities are more than 50% owned by the U.S. entity above it, but excluding foreign branches and all other Foreign Affiliates.
If required to report, a U.S. Reporter will complete one BE-10A, and for each Foreign Affiliate, one of three BE-10 forms: BE-10B, BE-10C or BE-10D. Determining which form applies to a particular Foreign Affiliate will depend on: (i) the total assets, sales or net income of the Foreign Affiliate during the fiscal year ending in 2019; and (ii) whether the foreign affiliate is majority-owned or minority-owned by the U.S. Reporter.2
Are Pooled Investment Vehicles Covered by BE-10?
Under certain circumstances, non-U.S. pooled investment vehicles may be deemed to be Foreign Affiliates of a U.S. Reporter. However, since the most recent BE-10 was conducted, the BEA adopted certain changes to its surveys, which impact the reporting requirements for certain investments involving “private funds.”3 The BEA surveys historically required U.S. Reporters to treat as Foreign Affiliates non-U.S. private funds for which the U.S. Reporter or an affiliate serve as a general partner. As a result, investment advisers to hedge funds and private equity funds often were required to report those funds on their BEA filings. In the case of BE-10, the BEA’s new framework for treating private funds has the effect of exempting U.S. Reporters from treating as Foreign Affiliates any non-U.S. private funds that do not own more than 10% of an “operating company” (defined by the BEA as a business enterprise that is not a private fund or a holding company).
These changes to the treatment of private funds were intended to address certain redundancies in the data reported in BEA surveys and the data reported in surveys administered by the U.S. Department of the Treasury in connection with its Treasury International Capital (TIC) reporting system. Holdings that are no longer required to be reported on BE-10 may continue to be reportable on certain TIC forms. As a result, some asset managers that previously reported on U.S. direct investment in foreign private funds they sponsored may no longer be required to file BE-10. Sponsors of private equity funds should note, however, that a foreign private equity fund with a U.S. general partner may still be in scope of BE-10 if the private equity fund holds more than 10% of the voting interests of a portfolio company that is an operating company.
Note that pooled investment vehicles located in the United States for which a U.S. Reporter serves as a general partner generally would need to be consolidated with the U.S. Reporter for BE-10 reporting purposes (regardless of whether or not those pooled investment vehicles are private funds).
What Information does BE-10 Capture?
BE-10 captures data concerning U.S. direct investment in non-U.S. companies, including (among other things): certain information about the organization and operations of a U.S. Reporter’s business enterprise; information about transactions between the U.S. Reporter and its Foreign Affiliates; and financial and operational information about each Foreign Affiliate. The 2020 BE-10 includes new questions on digital economy activities that were not included in prior iterations of the survey. These questions capture (among other things) information as to the percentage of a U.S. Reporter’s or Foreign Affiliate’s services that are delivered remotely using information and communications technology networks.4 In addition, the BEA recently reiterated that foreign real estate owned by a U.S. Reporter generally constitutes a Foreign Affiliate; the BEA published new guidance on reporting such real estate on BE-10.5
What If a U.S. Person Owns Less than 10% of a Firm or Investment Fund?
Certain ownership data excluded from BE-10 may be reportable on forms administered under the TIC reporting system. In contrast to the BEA surveys’ focus on direct investment, TIC forms collect information on “portfolio investments” (i.e., where a U.S. person owns less than 10% of a non-U.S. person’s voting interests, or vice versa). Accordingly, to the extent there is U.S. ownership of less than 10% of the voting interests of a non-U.S. business enterprise, that information may be reportable on one or more TIC forms.6 Asset managers should consider how BE-10 and other BE surveys relate to one another, as well as how the BE surveys interact with those of other related reporting regimes, including the TIC reporting system. Taking a holistic approach to gathering and reporting data on these various forms can help to mitigate the reporting burden over time.
What if a Firm is Experiencing Difficulties Completing the Form by the Deadline?
The instructions to BE-10 provide a mechanism for submitting reasonable requests for extensions. In order to be considered, such a request must be submitted through the BEA’s electronic filing system and must be received by the applicable filing deadline.
Citing the disruptions caused by the COVID-19 coronavirus pandemic, the BEA recently reiterated that U.S. Reporters may request extensions of the applicable filing deadline, and emphasized that U.S. Reporters should request such extensions through the BEA’s electronic filing system in light of the agency’s limited ability to process extension requests or other correspondence submitted by mail. In addition, the BEA has stated that U.S. Reporters may provide estimates where the data required in the survey is unavailable or difficult to access.
Dechert is available to assist with completing the forms and to answer questions regarding the BEA Surveys and TIC requirements.
2) BE-10B covers each majority-owned non-U.S. affiliate with total assets, sales or gross operating revenues, or net income (loss), greater than $80 million.
(i) each majority-owned non-U.S. affiliate with assets, sales or gross operating revenues, or net income (loss), greater than $25 million but no one of these items was greater than $80 million;
(ii) each minority-owned non-U.S. affiliate with assets, sales or gross operating revenues, or net income (loss), greater than $25 million; and
(iii) each non-U.S. affiliate: (a) for which none of the assets, sales or gross operating revenues, or net income (loss), was greater than $25 million; and (b) that is a non-U.S. affiliate parent of another non-U.S. affiliate being filed on Form BE-10B or BE-10C.
BE-10D covers non-U.S. affiliates: (a) for which none of the assets, sales or gross operating revenues, or net income (loss), was greater than $25 million; and (b) that is not a foreign affiliate parent of another foreign affiliate being filed on Form BE-10B or BE-10C.
3) “Private fund” refers to the same class of financial entities defined by the Securities and Exchange Commission as a private fund for purposes of 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.”
4) For additional information, please refer to Guidance on Digital Economy Questions for the 2019 BE-10 Benchmark Survey of U.S. Direct Investment Abroad (April 2020).
5) For additional information, please refer to Reporting Real Estate Investments on the 2019 BE-10 Survey (March 2020).
6) For a detailed discussion of the TIC reporting system, please refer to The Investment Lawyer, Foreign Holding and Transactions with Foreign Persons: Reporting Responsibilities for US Investment Managers and Other Financial Institutions (April 2014).