By: Matthew D. Lee, Paul E. Campbell and Jeffrey M. Rosenfeld
The Bureau of Economic Analysis (“BEA”), an agency of the U.S. Department of Commerce, is currently conducting a benchmark BE-10 survey that requires the filing of a BE-10 report by any U.S. person that directly or indirectly owned or controlled a foreign affiliate at any time during the U.S. person’s 2014 fiscal year. U.S. residents, limited liability companies, partnerships and corporations generally all qualify as U.S. persons for these purposes. A foreign affiliate is an entity located outside of the U.S. in which a U.S. person owns or controls at least 10 percent of the entity’s voting stock if the entity is incorporated or an equivalent interest if the entity is unincorporated. The purpose of the survey is to provide data regarding U.S. investment abroad and to provide a complete and comprehensive picture of the global impact of U.S. investment on the worldwide economy.
The information obtained and filed pursuant to this survey is confidential and is used only for analytical and statistical purposes. The BEA is prohibited from granting another agency access to the data for tax, investigative, or regulatory purposes. Practically speaking, this means that the information reported on a BE-10 report cannot be disclosed to the Internal Revenue Service for tax compliance purposes.
Initially, a BE-10 report was due no later than May 29, 2015 for U.S. persons required to file less than 50 forms. However, the BEA recently granted an extended due date of June 30, 2015 for all new filers who have not previously filed a BE-10 report.
Failure to file can result in both civil and criminal penalties. Civil penalties can range from fines of $2,500 to $25,000 in addition to injunctive relief requiring compliance. Willful failure to file can result in a penalty of not more than $10,000 and, for an individual, up to one year in prison, or both.
Below are answers to some frequently asked questions concerning the BE-10 report.
Why am I only now hearing about this?
In prior years, only U.S. persons who were contacted directly by the BEA were required to participate in the survey. However, this year’s survey requires a BE-10 report for every U.S. person who owned or controlled a foreign affiliate at any time during the 2014 fiscal year, regardless of whether such U.S. person was contacted by the BEA.
Do I have to file a BE-10 report if I own real property in a foreign country which I currently lease to others?
Generally, yes. As discussed above, a BE-10 report must be filed by any U.S. person which owns or controls a foreign affiliate. For this purpose, a U.S. person that owns real property located in a foreign country is considered to control a foreign affiliate. However, a U.S. person need not file a BE-10 report if such U.S. person owns real estate that is held exclusively for personal use. For example, a primary residence abroad that is leased to others while the owner is a U.S. resident, but which the owner intends to reoccupy, is considered real estate held for personal use.
What if multiple U.S. persons own more than a 10% interest in the same foreign affiliate?
In such a case, the U.S. person with the highest ownership percentage in the foreign affiliate will file a complete BE-10 report, and the other U.S. persons will file only a partial BE-10 report (in accordance with the instructions) and make proper reference to the U.S. person filing the complete BE-10 report.
For example, if eight U.S. persons each own 12.5% of a U.S. limited liability company that, in turn, owns 100% of a foreign affiliate, then the U.S. limited liability company will file the complete BE-10 report, and each of the eight U.S. members of the U.S. limited liability company will file a partial BE-10 report in accordance with the instructions, making proper reference to the U.S. limited liability company’s complete BE-10 report consistent with the rules discussed in the preceding question and answer.
If I own an interest in a U.S. entity that, in turn, owns an interest in a foreign affiliate, must I file a BE-10 report? Must the U.S. entity? Must we both file a BE-10 report?
If a U.S. individual owns more than 50% of a U.S. entity that, in turn, owns a foreign affiliate, then the U.S. business enterprise, not the individual, must file the BE-10 report. However, on its BE-10 report, the U.S. entity will be required to disclose the U.S. individual’s direct investments in the foreign affiliate.
If a U.S. individual owns 50% or less of a U.S. entity that, in turn, owns a foreign affiliate, then the rule mentioned in the preceding paragraph will not apply, and both the U.S. individual and U.S. entity will be required to separately file appropriate BE-10 reports.
How do the consolidation rules work?
If a U.S. corporation is a U.S. reporter, then it must file a BE-10 report on a consolidated basis with its entire U.S. domestic consolidated business enterprise. In other words, the parent corporation (a corporation that is not more than 50% owned by another U.S. reporter) must file (i) a BE-10 report on its own behalf and (ii) a BE-10 report for each U.S. business enterprise, proceeding down each ownership chain from said parent corporation, whose voting securities are more than 50% owned by the U.S. business enterprise above it.
Informal guidance suggests that a U.S. limited liability company or partnership must follow these same consolidation rules despite the fact that the instructions only refer to a U.S. corporation being subject to these rules.
What should I do if I am unable to complete the BE-10 report or I do not have the information necessary to accurately complete the BE-10 report?
Reasonable requests for an extension of the filing deadline will be considered. Extension requests must be received by the BEA no later than June 30, 2015 and enumerate substantive reasons necessitating the extension. The BEA will provide a written response to such requests.
In addition, the instructions to the BE-10 report specifically provide that the data disclosed on the BE-10 reports may be comprised of reasonable estimates based upon the informed judgment of persons in the responding organization, sampling techniques, pro rations based on related data, etc. The instructions require that the U.S. reporter consistently apply estimating procedures used on all BEA surveys.
Once I complete the BE-10 report, will I have any reporting obligations on a moving-forward basis?
Generally, yes. A U.S. person may have an obligation to report to the BEA on a quarterly basis, annual basis, or every five years, depending on the value of the foreign affiliates that were reported on the BE-10 report. Once a U.S. person files the BE-10 report, it is anticipated that the BEA will send the U.S. person a list of all follow-up reports required with applicable deadlines.
Individuals with questions about the BE-10 report should consult experienced counsel to understand the applicable reporting requirements, as well as to ensure proper completion of all applicable BE-10 reports. Blank Rome LLP has significant experience with international compliance matters and can assist individuals in ensuring the proper completion of the BE-10 report.
The instructions to the BE-10 report can be found at https://www.bea.gov/surveys/pdf/be10/BE-10%20Instructions.pdf.
The BE-10 report and the answers to other Frequently Asked Questions can be found at http://www.bea.gov/surveys/respondent_be10.htm.