Filing Fees Now Required for Certain CFIUS Filings

The US Department of Treasury (“Treasury”) has issued regulations that require filing fees on certain filings made to the Committee on Foreign Investment in the United States (“CFIUS”).

Treasury’s actions follow proposed regulations, released in March 2020, that called for filing fees for certain transactions (as we reported), consistent with the previously-enacted Foreign Investment Risk Review Modernization Act. In a somewhat unusual move, Treasury has made the filing fee requirement effective immediately (May 1, 2020), given (in Treasury’s words) “the intent and expectations of Congress and the growing number of transactions filed with CFIUS.” Perhaps recognizing the fast-track nature of the filing fee effective date, Treasury issued an “interim,” as opposed to final, regulation, and has invited additional comments on the regulations through June 1, 2020. Treasury will consider any additional comments before finalizing the filing fee rule.

The following assessments of the CFIUS filing fee regulation are provided to assist deal parties and investors in evaluating what, if any, fees may be required in connection with acquisitions of or investments in a US business.

CFIUS filings that require a filing fee

The regulations require filing fees when submitting, on or after May 1, 2020, formal written notices concerning non-US acquisitions (both controlling transactions and certain non-controlling covered investments) of US businesses, as well as certain US real estate transactions.

Filing fees are required when filing a formal notice, i.e., when deal parties either file a formal notice for a transaction subject to mandatory filing requirements, or choose to submit a voluntary notice to CFIUS for a transaction that is not subject to mandatory filing requirements (since absent a filing, there is no “safe harbor” from CFIUS review, and CFIUS retains the authority to block a deal, or unwind a closed transaction, that was not previously notified to it).

Filing fees are not required when parties file a short form declaration, either as a voluntary filing or in compliance with mandatory filing requirements. Deal parties should note, however, that filing a declaration does not necessarily insulate them from filing fees, since in response to a declaration, CFIUS can, and does, request parties to file a formal notice, which will then require a filing fee.

The regulation does not specify whether the fee is to be paid by the buyer or seller, so deal parties will need to address payment of CFIUS fees during negotiations.

Overview of filing fee structure

CFIUS filing fees will be assessed as a function of total transaction value, as follows:

CFIUS may, in currently undefined “extraordinary circumstances” relating to national security, waive the filing fee.

Calculating total transaction value

The regulation sets out how parties should calculate the value of a transaction, for filing fee purposes, with respect to various deal structures. Generally, however, the transaction value will be the total value of all consideration paid by or on behalf of the foreign person that is a party to the transaction, including cash, assets, shares or other ownership interests, debt forgiveness, or other in-kind consideration.

The value of a transaction that includes one or more non-US businesses generally will be calculated based on the entire value of the transaction, even if the US businesses form only one part of a larger cross-border deal. There is, however, an exception where the value of a global transaction is $5 million or more, the transaction includes one or more non-US businesses, and the value of the US business acquired is less than $5 million. (The value of the US business, for purposes of this exception, is the fair market value of the assets of the US business.) In this instance, the filing fee will be nominal ($750.00).

By way of illustration (provided by CFIUS): Corporation A, a non-US company, will acquire Corporation B, also a non-US company, for $100 million. Corporation B has subsidiaries in several countries, including Corporation C, a US business. The fair market value of Corporation C’s assets is $1 million. In this example, and assuming no other relevant facts, a $750 filing fee is required.

Payment timing

Payment of the applicable filing fee is required at the time the formal notice is filed. CFIUS will not accept a notice for review until the fee has been paid. The fee is not required for any pre-notice consultations, including the submission of a draft notice for CFIUS review and comment (a standard part of the CFIUS process). Filing fees must be paid via “Pay.gov,” a Treasury-sponsored transaction portal that enables secure electronic payments to the US government.

Refunds of filing fees

CFIUS will refund filing fees for a notified transaction if it determines that it lacks jurisdiction over the transaction. Otherwise, the regulations do not provide for the return of fees should the parties withdraw the filing and abandon the transaction, or if CFIUS (via the President) blocks the deal. However, where CFIUS permits parties to withdraw and refile a notice (which deal parties, mindful of the tight statutory deadlines for CFIUS to review a transaction, sometimes do in order to give CFIUS more time to assess a deal), parties are not required to pay an additional filing fee unless CFIUS determines that a material change to the transaction has occurred, or the initial notice contained material inaccuracies or omissions.

Potential impact of the anticipated "final" regulation

As noted, CFIUS is accepting comments on the “interim” filing fee regulation, and is expected to issue a final regulation after the current consultation period closes June 1, 2020. We do not anticipate that the final regulation will dramatically differ from the interim rule. The final filing fee regulation, once issued, may make certain changes to, for example, the filing fee process or the calculation of transaction value. CFIUS has indicated that it is interested in comments addressing alternative approaches to valuing a joint venture (with one alternative being to value a JV on the basis of the non-US person's proportional ownership interest in the JV, while another approach would base the value on the contribution made by the non-US person to the JV). But, no matter the changes, parties should expect that filing fees will remain a part of the CFIUS process going forward.

* * *

We continue to monitor developments in this area. Please contact the authors or your usual Herbert Smith Freehills contact for more information.