As discussed in our related March 25, 2020 post, in early March 2020, the Department of the Treasury (“Treasury”) issued a proposed rule regarding filing fees for parties filing voluntary notices of certain transactions for review by the Committee on Foreign Investment in the United States (“CFIUS”) pursuant to the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”). Earlier this week, on April 28, Treasury filed an interim final rule implementing filing fees beginning May 1, 2020. In issuing the rule as an interim final rule, the Treasury is extending to time to allow for additional public comment through June 1, 2020, in recognition of the COVID-19 pandemic potentially negatively impacting parties’ abilities to comment on the earlier proposed rule. Only five comment letters were received from the public during the initial comment period, one of which requested an extension due to the challenges posed by the global pandemic. As we stated previously, the rule likely will increase CFIUS’s scrutiny of transaction valuations to ensure appropriate fees are paid pursuant to the new fee structure.
CFIUS is an interagency committee chaired by the U.S. Department of the Treasury and tasked with evaluating certain foreign investments and transactions for national security-related concerns. In connection with these reviews, and as advised by CFIUS, the President may suspend or prohibit a transaction when there is credible evidence that the transaction may threaten national security. Thus, failing to receive CFIUS’s approval of a transaction can subject that transaction to substantial risk if national security concerns are determined to be involved. On the other hand, once CFIUS approves a transaction, that transaction generally will not be subject to further review unless false, incomplete, or misleading information was provided to CFIUS during the review and approval process.
Section 1723 of FIRRMA directs CFIUS to establish filing fees based on transaction value, taking into account the following factors: (1) the effect of the applicable filing fee on small business concerns; (2) expenses of CFIUS associated with review activities; (3) the effect of the applicable filing fee on foreign investment; and (4) any other matters CFIUS considers appropriate. Section 1723 of FIRRMA also provides that the maximum fee for a transaction may not exceed the lesser of one percent (1%) of the value of the transaction, or $300,000, adjusted annually for inflation.
New CFIUS Filing Structure Generally
A filing fee will apply to parties submitting written notices for “covered transactions” and “covered real estate transactions,” as defined at 31 C.F.R. § 800.213 and 31 C.F.R. § 802.212, respectively, on or after May 1, 2020, where the value of the transaction is $500,000 or greater. Filing fees are not required for short-form declarations, or for unilateral reviews of a transaction based on agency notices filed by CFIUS members, but will be required if, after submitting a declaration, CFIUS requests a full notice or the parties choose to file one voluntarily. CFIUS will accept a transaction for review only after payment or waiver of filing fees, and CFIUS may waive filing fees only if warranted by “extraordinary circumstances” relating to national security.
Proposed Fee Structure
For those transactions subject to a filing fee, the filing fee will be based on the value of the transaction as follows:
- Less than $500,000 – no filing fee
- $500,000 to $5 million – filing fee of $750
- $5 million to $50 million – filing fee of $7,500
- $50 million to $250 million – filing fee of $75,000
- $250 million to $750 million – filing fee of $150,000
- $750 million and up – filing fee of $300,000
The maximum potential fee is $300,000, and applicable fees may not represent more than 0.15% of the transaction’s value.
Determining Transaction Value
The value of a transaction must be determined to calculate applicable filing fees. Parties submitting a notice to CFIUS must include a short explanation in the notice regarding their calculation of transaction value and applicable fees.
- Typically, the transaction value will be the total value of consideration paid by the foreign investor(s), including cash, assets, shares, debt forgiveness, services, or other payments.
- If a transaction involves acquisition of, or investment in, one or more non-U.S. businesses, the transaction value will be assessed based on the global value of the transaction.
- There is one exception intended to mitigate the fee posed to parties filing a notice with CFIUS in cases in which a target company only has a limited presence in the U.S. If the transaction value would be equal to or greater than $5 million, but the value of the interests acquired in the U.S. business would be less than $5 million, the transaction value would be assumed to be equal to or greater than $500,000 but less than $5 million, resulting in a filing fee of $750. This exception should help incentivize the filing of voluntary notices of smaller foreign investments in U.S. companies.
- For covered real estate transactions, the value of the transaction will be the total value of consideration paid by the foreign investor(s), including lease inducements, fixed payments, certain variable lease payments, and other types of consideration applicable to real estate transactions.
- For transactions involving payment in securities, through non-cash assets, by services, or by other means, below are guidelines for determining transaction value:
- For securities traded on a national exchange, the transaction value will be determined by the last published closing price of the securities prior to the date of filing of the CFIUS notice.
- For non-cash assets, interests, services, or other means, the transaction value will be the fair market value of those items as of the date of notice filing with CFIUS.
- For a loan or financing agreement, the transaction value will be the cash value of the loan or financing agreement.
- For conversions of a contingent equity interest previously acquired by a foreign person, the value of the transaction will include the initial purchase by or on behalf of the foreign person to obtain the equity interest in addition to any other payments made.
- In rare circumstances when consideration for a transaction has not yet been determined, the value of the transaction will be based on the fair market value of the overall business or real estate being acquired.
Refunds of Filing Fees and Withdrawals
CFIUS will refund filing fees if it determines that a transaction is not within its jurisdiction. In addition, parties can petition CFIUS for partial refunds if they can demonstrate that they paid more than was required at the time of filing.
Parties will not have to pay additional fees if CFIUS allows them to withdraw and refile a notice, unless CFIUS determines that a material change to the transaction occurred, or that a material inaccuracy or omission was made by the parties in the information initially provided.
Payment of Filing Fees
The interim final rule directs parties to the Treasury website for payment instructions. As of the date of this blog post, those instructions require parties to submit payment through Pay.gov, a web portal enabling electronic payments to the U.S. government. Parties to a transaction must decide who will pay or how to split payment for applicable filing fees, but payment does not have to be made directly by a party to the transaction. Payment can be submitted by legal counsel or other third-party representatives.
The interim final rule constitutes an important next step in the implementation of FIRRMA and impacts investors in a range of sectors, including commercial and residential real estate, government contracting, private equity and other investment, telecommunications, and others. We will continue to track CFIUS-related developments.
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