CFIUS Issues Draft Rules for New Filing Fees

The Committee on Foreign Investment in the United States (CFIUS) has released draft regulations that, when effective, will implement new CFIUS filing fees authorized by the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). The draft rules will be open to public comment until April 3, 2020.

Pursuant to FIRRMA, CFIUS will assess filing fees only on full notices submitted to CFIUS voluntarily under (i) Part 800 of the CFIUS regulations (addressing “covered investments” in U.S. businesses), including full notices submitted voluntarily in lieu of mandatory short-form declarations; and (ii) Part 802 of the CFIUS regulations (addressing certain real estate transactions not subject to Part 800).Short-form (five-page) declarations of transactions, whether mandatory or voluntary, will not be subject to CFIUS filing fees. Filing fees also will not apply to “agency notices” initiated unilaterally by CFIUS.

As authorized by FIRRMA, the proposed fee for each voluntary CFIUS notice, payable at the time of filing, will be based on the value of the transaction:

CFIUS’s transaction value tiers do not track the size-of-transaction tiers used to calculate filing fees for premerger notifications under U.S. antitrust law. Unlike premerger notifications, for which filings are only required for transactions valued at more than US$94m, CFIUS filings are not subject to a minimum transaction size, so additional tiers are required to allow for smaller transactions. CFIUS has requested comments on the number of tiers and whether additional factors beyond transaction value should be included in CFIUS fee calculations.

Generally speaking, the “value” of the transaction for calculating the filing fees is the total consideration to be paid for the U.S. business (not accounting for minor closing adjustments) or covered U.S. real estate, or if the consideration cannot be determined, the fair market value of the assets being acquired.

• In the case of covered transactions under Part 800 in which the target includes both U.S. and non-U.S. businesses, the filing fee will be only US$750 if the target’s U.S. businesses are valued at less than US$5m. This provision is intended to limit disincentives from filing for multinational targets whose U.S. presence is limited. CFIUS has not applied a similar approach to real estate transactions covered by Part 802, but has requested public comment on whether it should do so.
• In the case of real estate leases and concessions, consideration includes all payments (including cash, non-cash, and in-kind payments) made to the lessor or grantor over the term of the lease or concession agreement, with variable amounts determined based on the applicable index or other rate as of the date of the CFIUS notice). CFIUS has explicitly requested industry comment on the valuation of real estate payments and whether the draft rules sufficiently reflect industry practices.

While the parties’ will be required to provide an estimate of a transaction’s value at the time of filing, CFIUS does not have to rely on that estimate and can adjust fees up or down after filing. Apart from any downward adjustments, filing fees are not refundable unless CFIUS determines that it does not have jurisdiction over the transaction.

CFIUS filings are sometimes withdrawn and refiled to allow additional time for CFIUS to complete its diligence or to negotiate mitigation conditions either internally or with the parties. Refilings for such purposes will not be subject to new filing fees. Refilings resulting from material changes to the transaction or material inaccuracies or omissions of information submitted to CFIUS may result in the assessment of new fees.

The draft rules permit CFIUS to waive of all or part of a filing fee in extraordinary circumstances relating to national security. These circumstances are not described in the draft regulations. 

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The new CFIUS filing fees give parties two new matters to consider:

• Whether to submit full notices to CFIUS in lieu of short-form declarations. Full notices are more burdensome to prepare, take longer for CFIUS to consider, and will soon require the payment of filing fees, but full notices are also more likely to result in conclusive CFIUS decisions.
• Whether to submit voluntary filings to CFIUS at all. CFIUS encourages voluntary filings by offering a “safe harbor” against future reviews of CFIUS-cleared transactions. Whether this post-closing benefit is offset by the additional cost of new filing fees will likely depend on the circumstances of each transaction and the risk tolerance of the parties.

The introduction of CFIUS filing fees is but one of several new FIRRMA provisions that will affect cross-border corporate investments and real estate transactions. We advise parties considering such transactions to keep apprised of these new provisions and to consult with experienced counsel before proceeding.

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Please visit linklaters.com/cfius for other Linklaters notes on the new CFIUS regulations.