UPDATE: On April 29, 2020, the US Department of the Treasury (the Treasury) issued an interim rule, effective May 1, 2020, concerning applicable filing fees for formal notice filings with the Committee on Foreign Investment in the United States (CFIUS or Committee), essentially implementing the proposed rule issued on March 9, 2020.
The rule implementing the filing fees is being issued as an interim rule, as opposed to a final rule, to allow for an additional comment period through June 1, 2020, for potentially interested parties that may have been unable to comment because of the unique challenges posed by the coronavirus disease 2019 (COVID-19) pandemic. In the meanwhile, however, the Treasury will begin to collect fees on May 1, 2020. Below we summarize key points of the new interim rule.
Will apply based on time of formal filing, not acceptance. Filing fee will be required for formal filings (not acceptances by CFIUS) made by parties on or after May 1, 2020. A filing fee will be required for any prefilings (i.e., “draft” written notice filings) submitted to CFIUS prior to May 1, 2020, that will have a formal written notice filed on or after May 1, 2020.
Re-clarifies that fee will apply to formal filings requested by CFIUS after a Declaration filing. Declaration filings are not subject to the filing fee, however, at the end of reviewing a declaration filing CFIUS may request that the parties submit a formal notice filing. That formal notice will be subject to a filing fee requirement and that filing fee must be paid prior to acceptance.
Confirming fee based on “value of transaction”, not the value of the US business portion of transaction. Consistent with the language in FIRRMA, the interim rule clarified that the parties should base the value of the transaction, from which the filing fee is calculated, on the entire transaction even if only part of the transaction involves a US business portion over which CFIUS has authority. Even though the fee is based on the entire value of the transaction, the proposed rule and interim rule provide for minimal fees (US$750) if the US business is valued below US$5 million, but the entire transaction is valued at US$5 million or more.
Valuing joint ventures and considering alternative approaches. The interim rule include a clarification to account for the possibility that more than one US business might be contributed to a joint venture. In such cases, the value is the collective value of each US business contributed. Given that this was a new approach, the Treasury included potential alternative approaches in its introduction to the interim rule for which it solicited comments. One alternative approach is to value a joint venture based on the foreign person’s proportional ownership interest in the joint venture, and another is to base the value on the contribution made by the foreign person to the joint venture.
Clarifying valuation of multi-phase transactions and contingent equity interests. The Treasury clarified that multi-phase transactions should be valued based on the total value of each phase, as may be reasonably determined, as of the date of the filing. For contingent equity interest, the rule provides that the value includes the consideration that was paid to acquire the contingent equity interest and any other consideration in connection with the conversion of the interest if: conditions that lead to conversion will occur imminently; the conditions are within the control of the acquiring party; and the consideration for the interest acquired upon conversion or satisfaction of contingent conditions can be reasonably determined at the time of acquisition.
Posted on March 10, 2020
CFIUS Filing Fees Rule Proposed
On Monday, March 9, 2020, the US Department of the Treasury’s (the Treasury) proposed rule for filing fees applicable to notice filings with the Committee on Foreign Investment in the United States (CFIUS or Committee) was published in the Federal Register (see 85 Fed. Reg. 13586, March 9, 2020). The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which amends section 721 of the Defense Production Act of 1950, authorized the Committee to “assess and collect a fee in an amount determined by the Committee in regulations . . .” (See FIRRMA § 1723, amending 50 U.S.C. § 4565.) As required by FIRRMA, the filing fees are proportional to the “value of the transaction” that is the subject of the filing with CFIUS.
Proposed Filing Fees
The CFIUS filing fees proposed by the rule are as follows:
|Transaction Value (US$)
|Proposed Filing Fee (US$)
|No Filing fee
|Greater than $500,000 but less than $5 million
|Greater than $5 million but less than $50 million
|Greater than $50 million but less than $250 million
|Greater than $250 million but less than $750 million
|Greater than $750 million
Only for Joint Notice Filings
The filing fees will only apply to joint notices. The fees will not apply to voluntary or mandatory declaration filings, or for reviews initiated by CFIUS. A filing fee applies to all joint notices, including those submitted in lieu of, or after CFIUS’s review of, any mandatory declaration filings. A filing fee would also apply to any joint notice that was submitted in response to a request from CFIUS (e.g., if parties to a transaction had decided not to submit a voluntary joint notice to CFIUS, but CFIUS contacted those parties and requested a joint notice).
Determining Value of Transaction
The proposed rule provides that the determinative “transaction value” for the purposes of assessing filing fees will be the total value of consideration paid by or on behalf of the foreign person who is a party to the transaction. Where consideration for the transaction is undetermined, the value of the transaction is proposed to be the fair market value of what is acquired. Where a transaction involves both US and non-US businesses, the proposed rule requires parties use the global value of the transaction except if the global value is equal to or greater than US$5 million and the US business portion is valued less than US$5 million. In such a case, only the value of the US business is considered to minimize potential disincentives where a target company has a limited presence in the US.
Must be Paid Prior to “Acceptance” of Filing
Like other regulatory filing fees (e.g., antitrust filings under the US Hart-Scott-Rodino Antitrust Improvements Act of 1976), if a CFIUS filing fee applies and has not been waived, the proposed rule provides that the fee must be paid to the Treasury prior to the CFIUS filing being accepted. If parties need to withdraw and refile that notice, however, the proposed rule does not propose a repeat filing fee as long as no material change has occurred as to the information reported in the notice.
Lower Fees Than Allowed Under FIRRMA to Minimize Impact
Under the proposed rule, the maximum filing fee of US$300,000 is the maximum fee permitted under FIRRMA; however, the tiered filing fees (amounting to 0.15% or less of the deal value) are less than authorized under FIRRMA, which permitted a fee of up to 1% of the deal value. The Treasury’s preamble to the proposed rule stated that the low fees afforded to transactions valued below US$5 million sought to alleviate burdens on small businesses. Further, the Treasury stated that the fees proposed “will not discourage filings and will allow parties to continue the practice of determining whether to file a voluntary written notice based on an evaluation of the facts and circumstances of the transaction.” (Parties to a transaction that does not trigger a mandatory filing have the option of submitting a voluntarily joint notices to CFIUS, the subsequent review and clearance of that joint notice by CFIUS provides a type of safe harbor for the transaction from future CFIUS intervention.)
Open for Comment
The Treasury “is interested in learning from the public about the impact that filing fees may have on a party’s decision to engage in a transaction and whether to seek safe harbor through the submission of a voluntary notice.” The proposed rule is open for comment until April 8, 2020.
Please contact us at InternationalTradeCompliance@squirepb.com with any questions.