On October 23, 2014, the Government of Canada introduced the
proposed Extractive Sector Transparency Measures Act into
Parliament. The proposed Act, which is contained with the
omnibus budget Bill C-43, is intended to deter and detect
corruption by requiring companies to report payments they make to
governments in Canada and abroad. The federal government is
implementing the measures as part of international efforts to
improve transparency surrounding payments made by companies in the
oil and gas and mining sectors to governments.
The Reporting Requirement
The reporting requirements will apply to any company that is
publicly traded in Canada, as well as any other company doing
business in Canada that meet two of the following three criteria:
it has at least $20 million in assets; it has at least $40 million
in revenue; or it has at least 250 employees. The federal
government will be able to expand the reporting requirement to
other companies by regulation. Those companies will be
required to report payments to governments in specified categories,
including taxes, royalties, fees, production entitlement, bonuses,
dividends and infrastructure improvement payments. The
federal government will have the power to expand the list of
reportable payment categories by regulation.
Companies will be required to disclose payments within a
category of payment that are made to the same government, if the
total of all payments during the financial year is at least
$100,000 (including the value of payments in kind), or any other
amount specified in regulations. The $100,000 threshold is
lower than the US$100,000 applicable in the United States and the
100,000 euro threshold applicable in the European Union.
Companies which are subject to reporting requirements in the United
States and Europe will have to keep these differing thresholds in
mind. The proposed Act does allow the federal government to
deem compliance with other jurisdictions' reporting
requirements to meet requirements under the proposed Act, if the
responsible Minister believes that the other jurisdiction's
reporting requirements meet the purposes of the proposed Act.
Companies are to report payments by filing reports within 150
calendar days of their financial year end. Companies will be
required to keep records related to reports for a period of seven
years after filing. In addition, the federal government will
have the power to order companies to provide information, including
audit results, needed to confirm that reporting requirements have
The proposed Act provides significant penalties for
contraventions, including fines of up to $250,000 for failure to
report payments and for deliberately structuring payments so as to
avoid triggering reporting obligations. Any official,
director, or agent of a company that directs, authorizes, assents
to, acquiesces in or participates in a contravention of the
reporting requirements will also be guilty of an offence and liable
to a fine of up to $250,000.
Application to Aboriginal Governments
The proposed Act will apply to payments made to Aboriginal
governments in Canada, but not for two years after the Act comes
into force. At that time, companies will be required to
report payments made to First Nations, Metis settlements and other
Aboriginal governments (for example those north of 60º) that
are within the listed categories.
At present, the categories of reportable payments do not include
consultation capacity funding payments, nor are "social"
payments for training and education, employment, and community
development purposes expressly included in the reporting
requirements. However, the scope of the "infrastructure
improvement payments" category is undefined, and could
potentially capture community investment payments made by companies
to Aboriginal governments under impact benefit agreements,
depending on the purpose or intended use of the payment.
Coming Into Force
There are no defined timelines for bringing the proposed Act
into force. However, the spring 2014 federal consultation paper on
establishing mandatory reporting standards for the extractive
sector states that Canada has committed to implementing the
measures by June, 2015. Assuming the proposed Act is passed
by Parliament along with the other provisions of Bill C-43, the Act
will come into force on a date or dates to be determined by the
federal government. Resource companies will want to monitor
the implementation of the proposed Act, and ensure that appropriate
internal tracking and compliance measures are in place prior to the
proposed Act coming into force.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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