82 FR 20433 - Small Business Investment Companies: Passive Business Expansion and Technical Clarifications

SMALL BUSINESS ADMINISTRATION

Federal Register Volume 82, Issue 83 (May 2, 2017)

Page Range		20433-20434
FR Document		2017-08810

On December 28, 2016, the Small Business Administration (SBA) published a final rule to expand permitted investments in passive businesses and provide further clarification with regard to investments in such businesses for the Small Business Investment Company (SBIC) Program, with an effective date of January 27, 2017. On January 26, 2017, SBA published a notification delaying the effective date until March 21, 2017 and re-opened the rule for additional public comment. On March 21, 2017, SBA published another notification to delay the effective date of this rule until May 20, 2017, to give the new administration time to further consider the rule. After reviewing the final rule, SBA is considering removing the provision that would allow SBICs to use a blocker corporation under its regulations if an investor of an SBIC has elected to be taxed as a regulated investment company (RIC) and a direct investment into the operating company would cause the investor to receive or be deemed to receive income that would jeopardize its RIC status. SBA is seeking additional comments regarding the removal of this provision. In order to give the public time to provide comments and for SBA to review those comments, the effective date of the final rule is delayed until August 18, 2017.

Federal Register, Volume 82 Issue 83 (Tuesday, May 2, 2017)

[Federal Register Volume 82, Number 83 (Tuesday, May 2, 2017)]
[Rules and Regulations]
[Pages 20433-20434]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-08810]



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Rules and Regulations
                                                Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
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under 50 titles pursuant to 44 U.S.C. 1510.

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Federal Register / Vol. 82, No. 83 / Tuesday, May 2, 2017 / Rules and 
Regulations

[[Page 20433]]



SMALL BUSINESS ADMINISTRATION

13 CFR Part 107

RIN 3245-AG67


Small Business Investment Companies: Passive Business Expansion 
and Technical Clarifications

AGENCY: U.S. Small Business Administration.

ACTION: Final rule; delay of effective date and request for comment.

-----------------------------------------------------------------------

SUMMARY: On December 28, 2016, the Small Business Administration (SBA) 
published a final rule to expand permitted investments in passive 
businesses and provide further clarification with regard to investments 
in such businesses for the Small Business Investment Company (SBIC) 
Program, with an effective date of January 27, 2017. On January 26, 
2017, SBA published a notification delaying the effective date until 
March 21, 2017 and re-opened the rule for additional public comment. On 
March 21, 2017, SBA published another notification to delay the 
effective date of this rule until May 20, 2017, to give the new 
administration time to further consider the rule. After reviewing the 
final rule, SBA is considering removing the provision that would allow 
SBICs to use a blocker corporation under its regulations if an investor 
of an SBIC has elected to be taxed as a regulated investment company 
(RIC) and a direct investment into the operating company would cause 
the investor to receive or be deemed to receive income that would 
jeopardize its RIC status. SBA is seeking additional comments regarding 
the removal of this provision. In order to give the public time to 
provide comments and for SBA to review those comments, the effective 
date of the final rule is delayed until August 18, 2017.

DATES: The effective date of the SBA final rule published December 28, 
2016 (81 FR 95419), delayed until March 21, 2017 at 82 FR 8499 and then 
further delayed until May 20, 2017 at 82 FR 14428, is further delayed 
until August 18, 2017. Comments on this document must be submitted no 
later than June 1, 2017.

ADDRESSES: You may submit comments, identified by RIN 3245-AG67, by any 
of the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions for submitting comments.
    Mail, Hand Delivery/Courier: Theresa Jamerson, Office of Investment 
and Innovation, U.S. Small Business Administration, 409 Third Street 
SW., Washington, DC 20416.
    SBA will post comments on http://www.regulations.gov. If you wish 
to submit confidential business information (CBI) as defined in the 
User Notice at http://www.regulations.gov, please submit the 
information to Theresa Jamerson, Office of Investment and Innovation, 
409 Third Street SW., Washington, DC 20416. Highlight the information 
that you consider to be CBI, and explain why you believe this 
information should be held confidential. SBA will review the 
information and make the final determination of whether it will publish 
the information.

FOR FURTHER INFORMATION CONTACT: Theresa Jamerson, Office of Investment 
and Innovation, (202) 205-7563 or sbic@sba.gov.

SUPPLEMENTARY INFORMATION: The U.S. Small Business Administration (SBA) 
Final Rule entitled Small Business Investment Companies: Passive 
Business Expansion and Technical Clarifications, 81 FR 95419 (December 
28, 2016), had an effective date of January 27, 2017. The Final Rule 
would expand permitted investments in passive businesses, provide 
further clarification with regard to investments in such businesses, 
and add certain requirements to improve SBA's ability to monitor such 
investments. The Final Rule would also make a conforming change to the 
regulations regarding the amount of leverage available to SBICs under 
common control to be consistent with the Consolidated Appropriations 
Act, 2016, which increased the maximum amount of such leverage from 
$225 million to $350 million.
    The January effective date was delayed to March 21, 2017, and the 
comment period was reopened until February 19, 2017. 82 FR 8499 
(January 26, 2017). The March effective date was further delayed to May 
20, 2017, for additional review. 82 FR 14428 (March 21, 2017).
    After completing its review, SBA is considering removing the 
provision that would allow SBICs to use a blocker entity under 13 CFR 
107.720(b)(3) if an investor in an SBIC, typically a business 
development company (BDC), has elected to be taxed as a regulated 
investment company (RIC) and a direct investment into the operating 
company would cause the investor to receive or be deemed to receive 
income that would jeopardize its RIC status. This provision was not 
included in the proposed rule published on October 5, 2016 (78 FR 
77377), but was added to the final rule published on December 28, 2016 
(81 FR 95419) based on comments SBA received. After further 
consideration, SBA is concerned that, in light of the increased 
complexities involved in monitoring and examining investments 
structured through blocker entities using this provision may increase 
risk to the SBIC program unless SBA were to increase examination 
resources to monitor these complex transactions. SBA notes that the 
final rule provides, among other things, two other exceptions to the 
passive business regulation--the blocker corporation exception for 
SBICs with tax exempt investors to avoid unrelated business taxable 
income (UBTI) and a similar exception for SBICs with foreign investors 
to avoid effectively connected income (ECI). SBA continues to believe 
the number of SBICs that would structure investments through passive 
entities utilizing these two exceptions is relatively low. Currently, 
SBA approves approximately five blocker corporation exceptions for UBTI 
each year and SBA expects that, after the rule is effective, only a few 
SBICs will use the ECI exception. On the other hand, there are 
currently 31 SBICs with BDC investors (BDC-SBICs) holding over 23% of 
SBA's outstanding guaranteed leverage. If the final rule were to become 
effective in the form published on December 28, 2016, SBA believes that 
many BDC-SBICs would structure a number of their investments through 
passive entities. Because BDC-SBICs represent such a large percentage 
of SBA's portfolio, significant numbers of investments structured 
through passive entities would pose a monitoring and examination 
challenge that could

[[Page 20434]]

expose the program to an unacceptable level of risk unless SBA 
increased significantly its examination and monitoring resources. 
Therefore, SBA is considering revising the final rule to remove this 
provision.
    SBA is seeking comments from the public to obtain additional input 
before making a final decision. To provide SBA with sufficient time to 
seek additional comments and make this determination, this notice 
further delays the effective date by 90 additional days to August 18, 
2017.

    Dated: April 25, 2017.
A. Joseph Shepard,
Associate Administrator, Office of Investment and Innovation.
[FR Doc. 2017-08810 Filed 5-1-17; 8:45 am]
BILLING CODE 8025-01-P

20434 Federal Register / Vol. 82, No. 83 / Tuesday, May 2, 2017 / Rules and Regulations

expose the program to an unacceptable OPIC has also updated its regulations Unfunded Mandates Reform Act of
level of risk unless SBA increased to incorporate much of the suggested 1995 (2 U.S.C. 202–05)
significantly its examination and language provided by the Department of This rule will not result in the
monitoring resources. Therefore, SBA is Justice, Office of Information Policy. expenditure by State, local, and tribal
considering revising the final rule to Adopting this language allows OPIC to governments in the aggregate, or by the
remove this provision. adopt many of the recommended best private sector, of $100,000,000 or more
SBA is seeking comments from the practices in FOIA administration. This in any one year, and it will not
public to obtain additional input before update also assists requesters as much significantly or uniquely affect small
making a final decision. To provide SBA of OPIC’s regulations are now similar to governments. Therefore, no actions were
with sufficient time to seek additional those of other agencies. deemed necessary under the provisions
comments and make this determination, of the Unfunded Mandates Reform Act
this notice further delays the effective OPIC published a proposed rule on
December 22, 2016 at 81 FR 93864 and of 1995.
date by 90 additional days to August 18, Small Business Regulatory
2017. invited interested parties to submit
Enforcement Fairness Act of 1996 (5
comments. OPIC received three sets of U.S.C. 801 et seq.).
Dated: April 25, 2017.
comments and has made several This rule is not a major rule as
A. Joseph Shepard,
changes to its rule based on these defined by section 804 of the Small
Associate Administrator, Office of Investment
suggestions. Business Regulatory Enforcement
and Innovation.
[FR Doc. 2017–08810 Filed 5–1–17; 8:45 am] OPIC adopted all of the suggestions Fairness Act of 1996. This regulation
BILLING CODE 8025–01–P
provided. First, OPIC updated its will not result in an annual effect on the
reference to General Records Schedule economy of $100,000,000 or more; a
14 to General Records Schedule 4.2 and major increase in costs or prices; or
changed the description of the services significant adverse effects on
OVERSEAS PRIVATE INVESTMENT competition, employment, investment,
offered by the Office of Government
CORPORATION productivity, innovation, or on the
Information Services from ‘‘mediation’’
to ‘‘dispute resolution.’’ Second, OPIC ability of United State based companies
22 CFR Part 706 to compete with foreign-based
removed references to the voluntary/
[No. FOIA–2016] companies in domestic and export
involuntary tests applied under
markets.
RIN 3420–AA02
Exemption 4 as these tests are laid out
in case law rather than the FOIA statute List of Subjects in 22 CFR Part 706
Freedom of Information itself. Third, OPIC removed the word Administrative practice and
‘‘professional’’ from its example for procedure, Freedom of information,
AGENCY: Overseas Private Investment requesting expedited processing to make Privacy.
Corporation. it clear that a requester need not be paid ■ For the reasons stated in the preamble
ACTION: Final rule. to disseminate information in order to the Overseas Private Investment
qualify for expedited processing. Corporation revises 22 CFR part 706 to
SUMMARY: This final rule implements
revisions to the Overseas Private Regulatory Flexibility Act (5 U.S.C. 601 read as follows:
Investment Corporation’s (‘‘OPIC’’) et seq.) PART 706—INFORMATION
Freedom of Information Act (‘‘FOIA’’)
Pursuant to the Regulatory Flexibility DISCLOSURE UNDER THE FREEDOM
regulations by making substantive and
Act, 5 U.S.C. 601 et seq., the head of OF INFORMATION ACT
administrative changes. These revisions
are intended to supersede OPIC’s OPIC has certified that this rule, as Subpart A—General
current FOIA regulations, located at this promulgated, will not have a significant Sec.
part. The final rule incorporates the economic impact on a substantial 706.1 Description.
FOIA revisions contained in the FOIA number of small entities. The rule 706.2 Policy.
Improvement Act of 2016, makes implements the FOIA, a statute 706.3 Scope.
administrative changes to reflect OPIC’s concerning the release of Federal 706.4 Preservation and transfer of records.
costs, and conforms more closely to the 706.5 Other rights and services.
records, and does not economically
language recommended by the impact Federal Government relations Subpart B—Obtaining OPIC Records
Department of Justice, Office of with the private sector. Further, under 706.10 Publicly available records.
Information Policy. the FOIA, agencies may recover only the 706.11 Requesting non-public records.
DATES: This rule is effective on May 1, direct costs of searching for, reviewing, Subpart C—Fees for Requests for Non-
2017. and duplicating the records processes Public Records
FOR FURTHER INFORMATION CONTACT: for requesters. Based on OPIC’s 706.20 In general.
Nichole Skoyles, Administrative experience, these fees are nominal. 706.21 Types of fees.
Counsel, (202) 336–8400, or foia@ 706.22 Requester categories.
Executive Order 12866 706.23 Fees charged.
opic.gov.
706.24 Requirements for waiver or
SUPPLEMENTARY INFORMATION: The OPIC is exempted from the reduction of fees.
revision of part 706 incorporates requirements of this Executive Order
Subpart D—Processing of Requests for
jstallworth on DSK7TPTVN1PROD with RULES

changes to the language and structure of per the Office of Management and
Non-Public Records
the regulations and adds new provisions Budget’s October 12, 1993
memorandum. Accordingly, OMB did 706.30 Responsibility for responding to
to implement the FOIA Improvement
requests.
Act of 2016. OPIC is already complying not review this rule. However this rule 706.31 Timing of responses to requests.
with these changes and this revision was generally composed with the 706.32 Responses to requests.
serves as OPIC’s formal codification of principles stated in section 1(b) of the 706.33 Confidential commercial
the applicable law and its practice. Executive Order in mind. information.

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Document Created: 2017-05-02 00:04:40
Document Modified: 2017-05-02 00:04:40

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Rules and Regulations
Action		Final rule; delay of effective date and request for comment.
Dates		The effective date of the SBA final rule published December 28, 2016 (81 FR 95419), delayed until March 21, 2017 at 82 FR 8499 and then further delayed until May 20, 2017 at 82 FR 14428, is further delayed until August 18, 2017. Comments on this document must be submitted no later than June 1, 2017.
Contact		Theresa Jamerson, Office of Investment and Innovation, (202) 205-7563 or [email protected]
FR Citation		82 FR 20433
RIN Number		3245-AG67