CFIUS Filing Fees Start May 1, 2020

For the first time, starting on May 1, 2020, parties that submit formal notices to the Committee on Foreign Investment in the United States (“CFIUS”) with respect to covered foreign investment transactions and covered real estate transactions will have to pay filing fees.  No fee will be required for transactions where parties file a short-form declaration with CFIUS, rather than a formal notice.^[1]

In recognition of the challenges posed by the coronavirus pandemic during the public comment period for the proposed filing fee regulations issued by CFIUS on March 9, 2020 (see our previous client alert), the Treasury Department issued an interim rule, published in the Federal Register on April 29, 2020 (the “Interim Rule”), rather than a final rule.  It will accept public comments on the Interim Rule until June 1, 2020. Notwithstanding pandemic-related disruptions, however, the Treasury Department has decided to begin to collect fees on May 1, 2020, “to ensure that revenue collected in fiscal year 2020 is as closely aligned as possible to the estimates made in the Consolidated Appropriations Act, 2020.”

The Interim Rule follows CFIUS’s issuance of final regulations implementing the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) that became effective on February 13, 2020, as described in our prior client alert.  The Interim Rule does not make significant changes to the proposed filing fee regulations.  The following tiered fee structure included in the proposed regulations has been adopted:^[2]

In general, starting on May 1, 2020, parties will be required to pay the filing fee, in U.S. dollars by electronic payment, before CFIUS will accept a notice for review.  Even if parties have filed a draft notice prior to May 1, they must pay the filing fee unless they submit a formal notice prior to such date. 

The Interim Rule, like the proposed regulations, provides that for covered transactions and for purchases of covered real estate, the transaction value is the total value of consideration paid by the foreign investor(s), including cash, assets, shares, debt forgiveness, services, or other in-kind consideration.  In situations where the transaction involves acquisition of or investment in one or more non-U.S. businesses, the transaction value will generally be the full global value of the transaction.  However, if the global transaction value equals or exceeds $5 million but the value of the interest acquired in the U.S. business is less than $5 million, the filing fee will be $750.  

The Interim Rule largely adopts the guidelines for determining transaction value that were included in the proposed regulations, and includes a number of illustrative examples.  For transactions involving payment in securities, through non-cash assets, by services, or by other means, the Interim Regulation Rule sets forth the following guidelines:

• For securities traded on a national exchange, the transaction value is 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 is 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 is the cash value of the loan or financing agreement;
• Where a transaction is or includes the conversion of a contingent equity interest previously acquired by a foreign person, the value of the transaction is generally the consideration that was paid by or on behalf of the foreign person to initially acquire the contingent equity interest, in addition to any other consideration paid or to be paid in connection with the conversion; and
• With respect to covered real estate transactions, for leases and concessions, the value of the transaction is the sum of the consideration, including lease inducements, fixed payments, certain variable lease payments, and other types of identifiable consideration applicable to real estate transactions.

In addition, CFIUS has included some clarifications in the Interim Rule on transaction value calculation: 

• In-kind consideration includes intangible assets (i.e., intellectual property) paid by the foreign investor(s).
• Where more than one U.S. business is contributed to a joint venture, the value of the transaction is the collective value of each U.S. business contributed.
• In multiple-phase transactions, the value of the transaction includes the total value of each phase, as can reasonably be determined as of the date of the filing.
• Where a transaction is or includes the acquisition of a contingent equity interests, the value of the transaction includes the consideration paid to acquire the contingent equity interest and includes any other consideration paid or to be paid in connection with the conversion if:
  
  1. the conditions that lead to conversion will occur imminently;
  2. the conditions are within the control of the acquiring party; and
  3. the consideration for the interest that would be acquired upon conversion or satisfaction of contingent conditions can be reasonably determined at the time of acquisition.

Under the Interim Rule, parties submitting a notice to CFIUS are required to include a short explanation of how they determined the reported transaction value. CFIUS will not generally refund filing fees unless it determines that a notified transaction is not a covered transaction or a covered real estate transaction.

^[1] Nor will filing fees be required in connection with reviews of transactions based on agency notices filed by a CFIUS member agency, rather than by the parties to a transaction.

^[2] In general, no additional filing fee would be required if the parties withdraw and re-file a notice.