CFIUS Filing Fees Go Into Effect Today
On April 27, 2020, the Department of the Treasury issued an interim rule establishing a filing fee for certain transactions filed with the Committee on Foreign Investment in the United States (“CFIUS”). The fees only apply to transactions that are filed as notices. They do not apply to transactions submitted as declarations, which is the new short-form filing method permitted by CFIUS. The required fee amount is based on the value of the transaction, and in accordance with the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) the fees cannot exceed the lesser of one percent of the value of the transaction or $300,000. We previously discussed Treasury’s March 9, 2020 notice of proposed rulemaking regarding filing fees here. While CFIUS filing fees will be required starting May 1, Treasury has issued this as an interim rule in order to allow time for additional comments due to the challenges posed by the COVID-19 pandemic during the comment period for the proposed rule, which ended on April 3, 2020. Treasury will accept comments on the interim rule through June 1, 2020.
- Which CFIUS filings require the payment of fees?
Through the CFIUS reform law FIRRMA, Congress authorized CFIUS to collect fees for transactions filed by parties through written “notices.” Filing fees are required for any voluntary notice. FIRRMA does not authorize fees for transactions submitted through a short-form “declaration.”
CFIUS offers the option of filing any transaction using the new short-form “declaration” filing method, including mandatory CFIUS filings. However, in some cases parties who expect the CFIUS process to take longer than the 30 days allotted for the declaration process will opt to file a full joint notice to avoid the extra 30+ days the initial declaration can add to the CFIUS timeline. In such cases a filing fee is required for the “notice,” even if filing with CFIUS is mandatory.
Also, if the parties choose to file a declaration and CFIUS is unable to conclude action on the basis of the declaration, a filing fee will be owed in order for the parties to file a full notice to continue the CFIUS process. The advantage of continuing the CFIUS process is that upon its conclusion the parties will receive safe harbor, which means CFIUS cannot subsequently initiate another review of the transaction except in very limited circumstances.
- How much are the fees?
The interim rule does not change the fee structure or amounts identified in the proposed rule. The fees are tiered, based on the value of the notified transaction. Transactions valued below $500,000 are exempt from paying any filing fee, and fees are statutorily capped at $300,000 under FIRRMA, subject to annual inflation increases. The tiers for CFIUS fees are as follows:
|Value of the Transaction||Filing Fee (U.S. Dollars)|
|$500,000 – $5 million||$750|
|$5 million – $50 million||$7,500|
|$50 million – $250 million||$75,000|
|$250 million – $750 million||$150,000|
Treasury notes in the preamble to the interim rule that these fees represent only a small amount of the overall value of a given transaction (0.15% or less), and therefore CFIUS does not expect the imposition of CFIUS filing fees to negatively impact the flow of foreign investment into the United States.
- How should the value of the transaction be calculated?
Treasury provides detailed guidance in the interim rule regarding how to calculate the value of the transaction for purposes of calculating fees. In most cases, the value of a transaction will be the total value of all consideration paid by the foreign person that is a party to the transaction. The value of the consideration may include non-cash assets, including intangible assets. For example, if a foreign corporation provides assets, such as inventory, machines and intellectual property, in consideration for shares in a U.S. business, the “fair market value” of those assets, including the intellectual property, must be calculated to determine the value of the transaction. If the consideration is a publicly traded security, “the value of the transaction is calculated based on the closing price on the national securities exchange on which the securities are primarily listed on the trading day immediately prior to the date the parties file a notice with the Committee.” If the transaction includes a lending transaction, the cash value of the loan or other financing arrangement should be included in the calculation of the value of the consideration.
“Fair market value” is defined to mean “the price that would be received in exchange for sale of an interest, or paid to receive a service or to transfer liability, in an orderly transaction between market participants.” In determining fair market value, parties may rely on the value of services as set forth in an executed written estimate or perform an estimate at the time of filing the CFIUS notice, using “rates charged to third parties,” or “recent industry reports or other sources of comparable commercial data.” If such sources are unavailable, a good faith estimate is acceptable.
Treasury provides guidance on the fee calculation in other specific scenarios, as follows:
- Transactions Involving One or More Non-U.S. Businesses: Where a transaction includes one or more non-U.S. businesses, the value of the business will be based on the global value, not just the value of the U.S. business. Treasury notes that one reason for this is that parties carefully negotiate the value of the overall transaction but do not necessarily assign an agreed value to individual parts. However, Treasury also acknowledges that there may be circumstances in which a target company with global operations has limited presence in the United States. To address such situations, the interim rule includes an exception for transactions valued at $5 million or more, if the value of the interest acquired in the U.S. business is less than $5 million. In such cases, the fee will only be $750.
- Multiple Phase and Contingent Equity Interest: If the transaction includes “the conversion of a contingent equity interest previously acquired by a foreign person that is a party to the transaction,” the value calculation should include the amount initially paid to acquire the contingent equity interest, in addition to any other consideration paid in connection with the conversion. Similarly, for multi-phase transactions, the value of the transaction will include the total value of each of the multiple phases, as may be reasonably determined at the time of filing.
- Joint Ventures: Treasury specifically welcomes comments on how to value a joint venture transaction. Currently the interim rule provides that the value of the transaction will be the collective value of each U.S. business contributed to the joint venture. Treasury acknowledges that an alternative approach would be “to value a joint venture transaction on the basis of the foreign person’s proportional ownership interest in the joint venture.”
- When must the fee be paid?
The Treasury Department must receive the fee payment before it will accept a formal written notice for review. As CFIUS veterans know, CFIUS does not automatically accept formal written notices upon receipt. CFIUS reviews the filings for completeness and then issues a written acknowledgement letter accepting the filing for review and identifying the date on which the review period will begin.
- Which party pays the fee?
Treasury does not specify which party must pay the filing fee. CFIUS filings almost always are joint filings. Both the buyer and seller must supply certain information and each is required to certify the accuracy of the content they provide. Thus, it will be up to the parties to determine whether the fee is shared or paid by a single party to the transaction.
- How does one pay the CFIUS fee?
Parties must make an electronic payment, in U.S. dollars, and in accordance with the instructions available on the CFIUS section of the Treasury website.
- Are there circumstances in which CFIUS will waive the filing fee?
In extraordinary circumstances relating to national security, CFIUS may waive the filing fee.
- Under what circumstances will CFIUS refund the fees?
If CFIUS determines that a notified transaction is not a “covered transaction” or a “covered real estate transaction,” i.e., it is not a transaction subject to CFIUS review, then CFIUS will refund the filing fee.
In addition, if CFIUS determines that the parties overpaid, Treasury will refund the amount of the overpayment.
- What happens if the parties pay less than the required filing fee?
If CFIUS determines the parties underpaid the filing fee, CFIUS could reject the CFIUS notice upon determining the filing fee was insufficient. Prior to rejecting the notice, CFIUS must give the parties three days to pay the remaining fee.
- What if the parties withdraw and refile a CFIUS notice?
In cases where CFIUS permits the parties to withdraw and refile a notice, the parties will not be required to pay an additional fee unless a material change to the transaction has occurred or the prior filing contained a material inaccuracy or omission.
V&E has extensive experience advising clients on the legal, policy, and practical dimensions of CFIUS reviews. We are well-positioned to assist clients in understanding how the CFIUS process may affect their mergers, acquisitions and investments. Visit our website to learn more about V&E’s National Security Reviews (CFIUS) practice.
If you have any questions concerning CFIUS or the new filing fees, please contact the following Vinson & Elkins lawyers below.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.