On December 16, 2014, the federal Extractive Sector Transparency Measures Act (the "Act") received royal assent. The Act requires all entities involved in the commercial development of oil, gas or minerals, in Canada or elsewhere, to report payments made to domestic or foreign governments annually and make the information contained in those reports public. The Act requires reporting to Aboriginal governments in Canada, but delays the requirement to report payments to those bodies until two years after the Act is brought into force by Order in Council.
For many oil, gas and mining companies, the Act will impose significant annual reporting obligations. The exact nature of those obligations remains to be determined by regulations. Generally, reporting is triggered if an entity meets specified criteria and it makes certain kinds of payments in excess of reportable thresholds to defined Payees.
Companies listed on a Canadian stock exchange are required to report. So are entities with locations, operations or assets in Canada if, in their last two financial years, they met two of the following three thresholds: $20 million in assets, $40 million in revenue or an average of 250 employees. Other entities may be required to report by regulation. An entity can be a corporation, trust, partnership, or other unincorporated organization.
As "Payees" is defined very broadly, payments to a wide range of government boards, authorities, commissions, corporations and bodies will trigger reporting.
The Act does not specifically include "Aboriginal government" in the definition of Payees, but s. 29 makes it clear that reporting to an Aboriginal government will be required two years after the Act is brought into effect by Order in Council. The requirement to report payments to Aboriginal governments will cause some ripples. As standard practice, IBAs include confidentiality provisions prohibiting disclosure of payments to First Nations. Undoubtedly some will prefer that those payments remain confidential, while others will welcome the increased marketplace transparency for IBA negotiations. And, no doubt what constitutes an "Aboriginal government" and their boards, authorities, commissions, corporations and bodies will be carefully pondered by many.
Payments are grouped into eight categories:
- taxes, other than consumption taxes and personal income taxes;
- royalties;
- fees, including rental fees, entry fees and regulatory charges as well as fees or other consideration for licences, permits or concessions;
- production entitlements;
- bonuses, including signature, discovery and production bonuses;
- dividends other than dividends paid as ordinary shareholders;
- infrastructure improvement payments; or
- any other prescribed category of payment (section 2).
Entities must report a category of payments to a payee if the aggregate value of all payments in that financial year for that category exceeds a threshold of $100,000 or a threshold prescribed by regulation. Payments can be monetary or in kind. If the payments are in kind, their value is determined by the cost to the company or, if that cost cannot be determined, the fair market value.
Entities must also make the information contained in the report publicly available in the manner and form specified for a period of five years or a period of time determined by the regulations.
In some instances, if an entity is bound by another jurisdiction's reporting requirements, the report submitted to that jurisdiction may be an acceptable substitute.
Contravening the Act can trigger substantial penalties. Fines of $250,000 per day can be issued for every day that an entity has failed to comply with the Act.
As the Act allows the federal government numerous opportunities to more clearly and specifically define reporting requirements through regulations, exactly what reporting obligations companies will face will be determined when regulations are promulgated. For example, the regulations can specify when the Act's provisions do not apply to entities, payees or payments and the manner and form reporting may take. Companies to whom the Act will apply should review the regulations carefully when they are promulgated to determine exactly how the reporting obligations apply to them.
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