Canada: Canada's Resource Revenue Transparency Rules Now In Force

Canada's new Extractive Sector Transparency Measures Act1 was proclaimed in force today,2 in keeping with the federal Government's committed timeline. The Act imposes mandatory reporting requirements for each entity engaged in the "commercial development of oil, gas or minerals" (exploration, extraction, or having permits to do so) in Canada or elsewhere or that controls an entity that is so engaged. In keeping with global "publish what you pay" efforts to fight against corruption in the extractive sector, the Act is a significant step in Canada's commitment to establish mandatory reporting standards for the extractive sector "with a view to enhancing transparency on the payments they make to governments".3

The initiative is part of a larger global trend championing greater transparency and accountability within extractive industries, with the Extractive Industries Transparency Initiative having established rooting principles in the EITI Standard.4 In the United States, the Securities and Exchange Commission is developing mandatory reporting requirements for the extractive sector pursuant to section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.5 These rules are not expected until spring 2016. The European Union has also set about establishing requirements through its Accounting and Transparency Directives.6 In implementing them, the United Kingdom passed The Reports on Payments to Governments Regulations 2014 requiring extractive companies to publicly disclose the payments they make to governments commencing on or after January 1, 2015.7

The Act will require certain entities to file a report disclosing payments made by them or their subsidiaries to any Canadian or foreign government totalling at least C$100,000 (or other prescribed amount) for certain listed categories of payments. Each such entity will be required to file a report annually not later than 150 days after the end of its financial year.

Entities will be required to first comply with the Act for their next financial year following the current one in progress. This means that entities with a financial year ending December 31 will have to comply for the financial year starting January 1, 2016, and file a report by May 29, 2017, for payments made during 2016.

Notably, payments made to Aboriginal governments in Canada will be exempt through to May 31, 2017. In the meantime, consultations are ongoing as to whether such payments should be captured by the legislation.

Domestic and foreign entities exploring for or extracting oil, gas or minerals directly or through their subsidiaries and having a nexus with Canada should examine whether the rules apply to it. If so, they should be preparing to comply.

The Rules

1. Who will be Required to Report?

The requirement to report applies to entities (a) listed on Canadian stock exchanges, or (b) having a place of business in Canada, that conduct business in Canada or have assets in Canada and that, based on their consolidated financial statements, meet any two of the following three conditions for at least one of their two most recent financial years (in Canadian dollars): (i) have at least $20 million in assets; (ii) generate at least $40 million in annual revenue; and (iii) employ an average of at least 250 employees. (Note these are consolidated financial statements and conditions (i)-(iii) are not limited to Canadian assets, revenues or employees.)

In addition, a payment made by an entity that is not captured by the reporting requirements of the Act (because it does not meet the test set out immediately above) that is controlled by another entity, will be deemed to have been made by the controlling entity. The intended effect is to include a corporate family's collective payments in assessing whether the applicable dollar payment threshold has been exceeded.

The Act provides for consolidated reporting in instances involving wholly owned subsidiaries. In particular, where an entity and any wholly owned subsidiary of the entity are captured by the Act's requirements, the subsidiary will be deemed to have provided a report if: (a) the entity provides the Minister with a report that contains information relating to payments made by the subsidiary during the subsidiary's financial year; (b) not later than 150 days after the end of its financial year, the subsidiary gives written notice to the Minister that the parent entity will be providing the report; and (c) the subsidiary provides the Minister with a report disclosing any payments it has made during its financial year that are not covered by the report provided by the parent entity.

2. What Payments are to be Reported?

The Act requires entities to report all payments (whether monetary or in-kind) totalling $100,000 (or other prescribed amount) or more in a payment category made to any government in Canada or in a foreign state, body established by two or more governments, or body established to perform a governmental function. The following are the categories of payments that must be reported:

  • 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 those paid to governments as ordinary shareholders;
  • payments for improvements in infrastructure; and
  • any other prescribed category of payment.

Reporting under the Act is not required if payments within each category do not meet or exceed the $100,000 threshold (or other prescribed amount) even if the combined total of all payments across all categories exceeds $100,000 (or other prescribed amount). The Minister may specify the form and manner of reporting, which may include the requirement to report on a project-level basis.

3. What is the Process for Reporting?

The Act specifies that every entity must, within 150 days of the end of each financial year, provide the Minister with a report disclosing the payments that it made or is deemed to have made during that year. The report must include an attestation by a director or officer of the entity, or an independent auditor or accountant, indicating that the information in the report is true, accurate and complete.

Entities will be required to make any information required by the regulations available to the public or, if no such regulation is made, to make the report and any other information disclosed available to the public. The report and information will need to be available to the public for five years (or other prescribed period). The Act also imposes obligations on entities to maintain records of payments, which are to be kept for seven years (or other prescribed period) beginning on the day on which the entity discloses its report.

The Act contemplates the acceptance of reports prepared in accordance with commensurate reporting requirements of other jurisdictions. Specifically, the Act provides the Minister with the discretion to consider and determine whether the reporting requirements of another jurisdiction are an acceptable substitute for those contained within the Act. Should the Minister determine that the reporting requirements of another jurisdiction are an acceptable substitute, an entity will be deemed to have provided a report if it: (a) provides the report required by the foreign jurisdiction to its competent authority; (b) provides a copy of that report to the Minister within the period prescribed by the foreign jurisdiction's reporting requirements; and (c) complies with any other conditions imposed by the Minister.

4. How will the Legislation be Enforced?

The Minister will designate persons to administer and enforce the legislation, and a broad range of investigative powers are given to such designated persons. The Act also grants the Minister authority to issue orders to verify an entity's compliance with the Act. Pursuant to such an order, an entity may, among other things, be required to: (a) list its projects; (b) explain how certain payments were treated for the purpose of preparing its report; (c) disclose policies it implemented for the purpose of compliance; and (d) provide the Minister with the results of an audit of its report or the records of payments made for the financial year to which the report relates. Such audits are to be carried out by an independent auditor in accordance with the generally accepted auditing standards specified in the order.

If, on the basis of information from the entity and from any investigation made under the legislation, the Minister is of the opinion that an entity is not in compliance, the Minister has discretion to require the entity to take measures the Minister considers necessary to ensure compliance with the Act.

5. What if an Entity Fails to Report?

Failure to comply with the requirements of the Act will be subject to potentially significant sanctions. Specifically, failure to report, make reports and information available to the public, and keep records, all as required, will constitute offences under the legislation. It will also be an offence to (a) knowingly make any false or misleading statements or (b) structure payments with the intention of avoiding the reporting requirements. An entity or person who contravenes such requirements will be guilty of an offence punishable on summary conviction and liable to a fine not exceeding $250,000. Furthermore, if an offence under the Act is committed or continued on more than one day, it will constitute a separate offence for each day on which the offence is committed or continued. Finally, officers and directors of an entity who direct, authorize, assent to, acquiesce or participate in the commission of such an offence will be considered guilty and liable to the punishment provided for the offence. However, under the Act, a person or entity will not be found guilty if they establish that they exercised due diligence to prevent the commission of the offence.

Next Steps

Since the Act was tabled and passed in December 2014, a number of implementation issues have been identified by industry and discussed with Natural Resources Canada, particularly by an advisory working group. The Act will be supplemented by administrative guidance and regulations, which we expect to be released early this summer.


1 Bill C-43, Economic Action Plan 2014 Act, No. 2, 2nd Sess, 41st Parl, 2014, cl 376 [Division 28, s 6], now Economic Action Plan 2014 Act, SC 2014, c 39, s 376 [Bill C-43].


3 Natural Resources Canada, "Establishing Mandatory Reporting Standards for the Extractive Sector" Consultation Paper (Spring 2014), at 1, online: Natural Resources Canada. [Consultation Paper].


5 Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376, HR 4173, s 1504 (2010).

6 Accounting Directive 2013/34/EU, of the European Parliament and of the Council of 26 June 2013. Transparency Directive 2013/50/EU, of the European Parliament and of the Council of 22 October 2013 amending Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004. Member States are required to enact implementing legislation by 20 July 2015 for financial years beginning 1 January 2016 or during 2016.


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