On April 29, 2020, the US Department of the Treasury (Treasury) issued an interim final rule requiring the payment of fees for notice filings to the Committee on Foreign Investment in the United States (CFIUS). These fees are authorized by the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) and vary according to the value of the transaction. Although Treasury is accepting additional public comment on these rules until June 1, 2020, the filing fees, outlined below, go into effect and must be paid for CFIUS notices filed on or after May 1, 2020.
1. When are CFIUS filing fees required?
Filing fees are required only for a formal written notice filed on or after May 1, 2020 of a “covered transaction” as defined in 31 C.F.R. 800.213 or a “covered real estate transaction” as defined in 31 C.F.R. 802.212 where the value of the transaction is $500,000 or greater. The precise definitions of the above-referenced transactions that trigger fees is complex and requires evaluating several factors.
The filing fees only apply to the submission of a “notice” to CFIUS, which is a long-form submission generally used for more sensitive or complex transactions. Filing Fees do not apply to “declarations,” which are short-form filings that parties may submit to CFIUS on either a mandatory or voluntary basis. However, CFIUS may request parties to file a notice after reviewing a declaration. Parties also may elect to file a notice in lieu of a declaration. In both of those instances, an appropriate filing fee must be paid with the notice submission in accordance with the fee schedule, below.
Transactions completed or subject to a binding written agreement before February 13, 2020 are not subject to the new CFIUS regulations, including these filing fees. However, filing fees apply to parties that file CFIUS notices on or after May 1, 2020 if their transaction closed or is subject to a binding agreement on or after February 13, 2020.
CFIUS encourages parties to file a draft notice prior to submitting a final notice. This enables CFIUS to identify any missing or additional information for the parties to include in the final notice. Parties that have submitted draft notices that are pending with CFIUS as of May 1, 2020 will need to pay the appropriate filing fee upon submission of a final notice.
If the parties to a transaction withdraw and refile a notice, then a second filing fee generally is not required. The parties, however, may have to pay the fee again if the withdrawal and refiling are due to a material change in the transaction or the initial notice contained a material inaccuracy or omission.
2. Who must pay the fee?
The regulations do not specify which party (investor or US business) to a transaction is responsible for payment of the filing fee. Instead, the parties to a covered transaction are collectively responsible for payment of the filing fee. Thus, dealmakers will need to consider the allocation of payment of this cost in their transaction planning.
3. How much is the filing fee?
The amount of the filing fee is determined by the value of the transaction, based on the following tiered fee schedule:
|$0 to $499,999.99
|$500,000 to $4,999,999.99
|$5,000,000 to $49,999,999.99
|$50,000,000 to $249,999,999.99
|$250,000,000 to $749,999,999.99
4. How is the value of the transaction calculated?
The value of the transaction is based on the total value of consideration that has or will be paid. Such consideration includes, but is not limited to, cash, assets, shares or other ownership interests, forgiveness of debt, services, or other in-kind consideration.
The regulations acknowledge that calculating the value of the consideration may be complicated in certain circumstances and provide exceptions and guidelines. For example, where the value of the consideration cannot be reasonably determined as of the date the parties file the notice, the valuation may be based on the fair market value of the interest being acquired as of the filing date. For joint ventures, the value of the transaction is the fair market value of the US business being merged or contributed to the joint venture. Securities traded on a national exchange are valued as of the closing price on the day before filing with CFIUS or the last published closing price. Conversion of contingent equity interest is valued based on the underlying consideration paid plus any consideration associated with the conversion.
5. What happens if CFIUS determines that fees paid by the parties are insufficient?
In determining the fair market value of a transaction, CFIUS is not bound by the parties’ characterization of the value, even if it is made in good faith. CFIUS may reject a notice if it determines that the filing fee paid is insufficient. If CFIUS determines that the amount paid is insufficient, it will notify the parties and allow them an opportunity to pay the amount due before rejecting the notice.
6. When are the fees due?
Parties must pay the applicable fee at the time that they file a final notice with CFIUS. The filing fee must be paid before CFIUS will formally accept the notice and begin review of the corresponding transaction.
7. How is the fee paid?
All payments must be submitted through electronic payment in US dollars. Treasury’s website provides detailed payment instructions.
8. Are there any exceptions or refunds available?
CFIUS may waive the filing fee if “extraordinary circumstances relating to national security warrant.” Such a waiver, however, is expected to be exceedingly rare.
CFIUS will refund the filing fee if it determines that the transaction is not a “covered transaction” or “covered real estate transaction” subject to its jurisdiction. CFIUS may also elect to issue a refund if it determines that doing so would be in the interest of national security. Refunds for overpayment of filing fees are available upon a petition by the parties.
* * *
DLA Piper maintains a robust, cross-disciplinary CFIUS practice consisting of corporate, regulatory, and government affairs professionals. Please feel free to contact any of our CFIUS attorneys should you have any questions.