The BEA is an agency under the Department of Commerce charged with the duty of collecting information on myriad financial matters and statistics, compiling them into reports for both internal government use as well as use by the general public. In order to collect information into its reports, or ‘economic accounts’, the BEA gathers information in a variety of manners depending on the nature of the report. For its international economic accounts, a portion of this information is collected from US businesses and individuals with a collection of mandatory, BE series forms. Depending on the form, some are due annually, while others are due within a set timeframe from a qualifying event, and some are even due on a five year cycle. This last category is what the BE-10 series of forms belongs to.
The BE-10 – Overview
In the past, the BE-10 was collected from companies and individuals who were specifically contacted by the BEA after being chosen to participate in the international economic accounts study. This allowed companies and individuals who were chosen, and thus required to file, by the BEA to have adequate warning regarding their responsibilities. As failure to file a form required by the BEA can have civil penalties of up to $25,000, with willful failures to file being punished with additional penalties of up to $10,000 and up to a year imprisonment, it quickly becomes clear why this sort of notification regarding eligibility is important.
For the 2014 fiscal year reporting cycle which is currently due, in addition to the usual notification of prior filers of the BE-10 and other BEA required forms, all US persons having a “foreign affiliate” at any time during the U.S. person’s 2014 fiscal year are required to file a BE-10. A person is defined by the BEA in the BE-10 instructions as:
A foreign affiliate is defined as a business enterprise located outside the United States which is directly or indirectly owned or controlled by a U.S. person to the extent of 10 percent or more of its voting stock for an incorporated business or an equivalent interest for an unincorporated business, including a branch.
Business enterprise includes 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.” In BEA documentation, U.S. persons with foreign affiliates are defined as ‘U.S. Reporters’, and the BE-10 instruction booklet includes additional information for consolidated U.S. Reporters, as well as attribution rules to be used in the calculation of a U.S. Reporter’s ownership percentage of a foreign affiliate which are outside of the scope of this brief review.
If a U.S. person has filed a BE-10 during a prior cycle, and was notified by the BEA that it should file in 2015, but now has no foreign affiliates, a BE-10 Claim for Not Filing should be filed. There is some vagueness about whether or not all U.S. persons who are not subject to the BE-10 should file this exemption; however, it seems unlikely that the BEA’s intent is to be buried under exemption claims from every individual, trust, and business in the United States which is not required to file.
The BE-10 – Specifics
The BE-10 is composed of a BE-10A filing and at least one BE-10B, BE-10C, and/or BE-10D form, depending on the size of the foreign affiliate(s). The BE-10A is completed by the U.S. Reporter who has one or more foreign affiliates. Depending on the size and type of U.S. Reporter, a full or partial BE-10A must be completed. The different requirements based on type of filer, total assets, gross revenues, and net income are enumerated specifically in the BE-10A instructions. For example, an individual that directly owns a foreign affiliate generally only needs to complete items 1, 2, and 5 of the BE-10A, while a company with revenues in excess of $300 million needs to complete the entire form.
In addition to the BE-10A, which covers the U.S. Reporter, a BE-10B, BE-10C, and/or BE-10D will need to be filed for each foreign affiliate, depending on the affiliate’s size. The BE-10B is the most in depth of these forms, requiring a breakdown of the different classes of the affiliate’s stock, a breakdown of revenues by industry code, detailed R&D cost breakdowns, and information regarding imports and exports. The BE-10D, on the other hand, requests only the name, location, industry, number of employees, and basic financial information. The BE-10D can also be completed for multiple affiliates on a single form. As with the BE-10A, the defining numbers for the BE-10B, BE-10C, and BE-10D are total assets, sales/gross revenues, and net income.
Now while it may seem like this filing only applies to companies with foreign investments, the BEA is quite clear in that individuals, trusts, and non-profits are all subject to this reporting. With regards to individual ownership, the BEA considers all members of a family’s ownership to be aggregated, so this can result in an unexpected greater than 10% ownership of a foreign affiliate. Care needs to be taken in this area as well when computing ownership indirectly, and through intermediaries, but the BEA has attempted to provide guidance for this in the instructions for the BE-10 series and on their website.
An important fact to note is that foreign residential real estate held by a U.S. person for strictly personal use is not subject to the reporting requirements, nor is a second home abroad which is rented out while the U.S. resident is not there, but has the intent to reoccupy. This provides some relief for U.S. individuals owning overseas real estate; however, if any of their holdings are rented out without the intent for them to reoccupy the residence, or if the holdings are commercial real estate, a filing will be necessary.
A good question about all this information being requested is: what does the U.S. government intend to do with it? Luckily for U.S. Reporters, the BEA is quite clear that the information in the report is being collected for analytical and statistical purposes only, and is being maintained anonymously. It isn’t allowed to be shared in a way that identifies the respondent without the respondent’s consent, which hopefully should preclude the BEA from passing the information on to tax, investigative, or regulatory authorities.
As previously mentioned, the deadline for filing the BE-10 forms has passed for filers with under 50 affiliates; however, the BEA has granted an automatic extension for all first-time filers to June 30th, 2015. The forms can be submitted by mail or electronic file via the BEA’s website; to e-file, a U.S. Reporter needs to create an account in advance of the deadline in order to be approved in time to file.
Besides the BE-10 series of forms, the BEA has a variety of forms summarizing different aspects of foreign activity, ownership, and transactions. Most of these require that a U.S. Reporter be notified specifically by the BEA of their requirement to file, but the following are forms that every taxpayer with foreign activities or investors need to keep in mind.
The BE-13 is intended to capture new investments in the U.S. when “a foreign direct investment in the United States relationship is created or an existing U.S. affiliate of a foreign parent establishes a new U.S. legal entity, expands its U.S. operations, or acquires a U.S. business enterprise.” This form must be filed no later than 45 days following the date of the investment activity, and is required by any entity subject to the form’s requirements, regardless of whether or not it was contacted directly by the BEA.
The BE-12 is akin to the BE-10 in that it files on a five year cycle, with the last Benchmark Survey of Foreign Direct Investment in the United States occurring for the fiscal year ending in 2012. This survey is focused on the foreign owners of U.S. based affiliates.
If you think that any of these reporting requirements apply to you or your company, consider contacting your tax professionals as soon as possible. The clock is ticking on the BE-10 filing deadline, and you don’t want to risk those possible penalties for letting the time run out.
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This publication/newsletter is for informational purposes and does not contain or convey legal or tax advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. Any tax advice included in this informational publication is not intended or written to be used, and it cannot be used by the taxpayer, for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency.