The Canadian Government has introduced three improvements to the
Investment Canada Act ("ICA") process for
reviewing foreign investments as adjustments to its budget
(Bill C-38). Two relate to transparency and one relates to
compliance with undertakings.
The ICA requires that direct acquisitions of large Canadian
businesses (value of assets greater than $330 million of assets in
2012) be reviewed under a "net benefit to Canada" test.
(Smaller and indirect acquisitions may also be subject to review in
the cultural industries or where the acquirer is not from a
The rejection of BHP Billiton's proposed acquisition of
Potash Corporation of Saskatchewan in 2010 prompted a media clamour
that Canada might have turned hostile towards foreign investment,
that decision-making could be politically influenced and that the
ICA was non-transparent. However, BHP/PCS was only the third
rejected transaction since the ICA was enacted in 1985. The
suggestion that the Conservative Government — which was
re-elected with a large Parliamentary majority in May 2011
— does not welcome investment is simply wrong: it has an
extensive track record of approving ICA applications in a wide
range of sectors (prior to and since BHP/PCS), and has also
demonstrated proactive commitment to policies and negotiation of
agreements which will expand inbound and outbound investment and
trade with numerous countries.
The complaint that ICA decisions may be politically-influenced
is also peculiar. The ICA was deliberately designed to place
decision-making in the hands of an elected official (the Minister
of Industry or, in cultural cases, the Minister of Heritage) in
order to allow the broad list of economic factors that can be
considered under the "net benefit" test to be evaluated
in a substantive rather than technocratic way. Investors and their
advisors can address the relevant factors and the relevant
decision-makers/influencers in their regulatory clearance
The issue of transparency is not clear-cut, because there is a
trade-off between its benefits (chiefly information for interested
stakeholders and accountability of public decision-making) and the
important value of respecting the confidentiality of sensitive
transactional and commercial information.
The proposed amendments are designed to fine-tune this balance
by allowing the Minister to disclose transactions which have been
approved and to provide reasons in the rare cases where an
investment is determined not to be of net benefit. In the latter
situation, the investor will receive an opportunity to make
representations about confidentiality before the disclosure occurs,
and will also have 30 days in which to address the reasons and seek
to persuade the Minister that the net benefit test can be met (e.g.
through negotiation of undertakings). These are positive
Compliance with undertakings
Another case which has generated fear-mongering about
Canada's treatment of foreign investors is the Stelco
compliance proceeding. The Canadian Government took US Steel to
court and sought sizeable penalties for alleged failures to adhere
to its undertakings from its 2007 acquisition of Stelco (at that
time one of Canada's largest steel producers). One compliance
case in a quarter-century hardly signals hostility to foreign
investment; it merely indicates that investors should assume that
the Canadian Government will expect them to follow through on
written undertakings provided as part of securing a "net
benefit" approval. The court challenge was ultimately settled
with revised future commitments by US Steel.
The proposed amendments contain one enhancement of the
undertakings mechanism. The Minister may request security that can
be used to provide assurance that undertakings will be honoured. In
our view, security normally will not be necessary. We expect that
the Government will exercise this option in a reasonable manner and
that it will not become a significant barrier to investors who want
to implement transactions that are intended to meet the "net
In summary, the proposed changes allow the foreign investment
review process to operate more transparently and with stronger
compliance incentives, but do not change Canada's "open
for business" policy.
The foregoing provides only an overview. Readers are
cautioned against making any decisions based on this material
alone. Rather, a qualified lawyer should be consulted.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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