The Canadian Extractive Sector Transparency Measures Act (the Act) was proclaimed into force on June 1, 2015. The Act's stated purpose is "to implement Canada's international commitments to participate in the fight against corruption through the imposition of measures applicable to the extractive sector." The legislation requires Canadian businesses involved in resource extraction to file and make publicly available reports on certain types of payments made to both domestic and foreign governments. For a discussion of the reporting obligations under the Act, please refer to our February 25, 2015 and June 1, 2015 Osler Updates.
Natural Resources Canada (NRCan) has recently issued the following draft implementation tools for the Act which it created in consultation with industry, civil society organizations, Aboriginal experts, and provinces:
- Guidance to help businesses in the exploration and extractive sectors understand the requirements of the Act;
- Technical Reporting Specifications for the reporting process including instructions on how to complete the reporting template and how reports are to be published; and
- Reporting Template in both XLS and PDF formats.
NRCan is soliciting comments on the implementation tools until September 22, 2015, following which it will publish final versions.
Concurrently with the notice of its public consultation process, NRCan also issued a substitution determination which allows reports submitted to European Union and European Economic Area member states that have implemented the EU Accounting and Transparency Directives (EU Directive) at a national level to be submitted to the Minister of Natural Resources as a substitute for a report prepared under the Act.
Guidance and Technical Reporting Specifications
The Guidance provides an overview of the requirements of the Act with illustrative examples, including guidance on whether a Canadian extractive business is an "entity" that engages in the "commercial development of oil, gas or minerals," whether it meets the criteria of an entity that is required to report under the Act and what payments it is required to report:
- Entity: The Guidance confirms that the term "entity" is to be interpreted broadly to include not only those prescribed by the Act (i.e. any corporation, trust, partnership or other unincorporated organization) but also similar types of organizations such as unlimited liability corporations, limited partnerships and royalty trusts, but does not capture individuals or sole proprietorships.
- Commercial Development: The Guidance clarifies that the exploration or extraction of oil, gas or minerals "refers to the key phases of commercial activity" during the life cycle of a project, from prospecting to remediation, but is not intended to include "ancillary or preparatory activities" such as construction of an extraction site. The Guidance also confirms that businesses that provide goods or services associated with or related to commercial development of oil, gas or minerals would not constitute "entities" under the Act given that the activities they perform are outside the scope of commercial development. Contractors that provide such goods and services are not subject to the Act by virtue of their contractual arrangements with a reporting entity.
- Reporting Entity: The Guidance clearly
states that a business must be subject to Canadian law in order to
be subject to the reporting obligations under the Act. Accordingly,
a parent company which is not subject to Canadian law would not be
required to report even if it wholly owns a Canadian subsidiary
that is required to report. The Guidance also better defines
how to apply the size-related criteria in determining whether an
entity is required to report payments under the Act:
- the $20 million in assets and $40 million in revenue tests are to be based on amounts reported in an entity's consolidated financial statements in one of its two most recent financial years for its global assets and revenue (and not those of any parent company), and converted into Canadian dollars either using the exchange rate as of the entity's financial year end or the entity's method of translating the currency conversion used in its financial statements; and
- the number of employees should be based on the average of all employees over the two most recent financial years and should include full-time, part-time and temporary employees but not independent contractors (applying the Canadian common law definition of an employee).
- Payments: In determining whether a payment is required to be reported under the Act, the Guidance and the Technical Reporting Specifications emphasize substance over form. The Guidance provides a brief overview of the seven categories of "payments" that must be reported under the Act, and directs reporting entities to use their reasonable judgment in cases where it may be unclear whether a payment should be reported under one category or another. The Guidance also specifies that, in determining whether a series of payments constitute payments to the "same payee," reporting entities must group together departments, ministries, boards, bodies and other authorities that perform or are established to perform a power, duty or function on behalf of a particular level of government (e.g. national / regional / municipal) but encourages reporting entities, where practical, to list each department or agency to whom a payment is made. For example, fee payments to the National Energy Board, Environment Canada and NRCan (which are all Canadian federal bodies) would constitute payments to the "same payee" under the Act, but the report should note three separate payments made to the National Energy Board, Environment Canada and NRCan.
The Guidance also notes that the Government of Canada is monitoring risks of potential conflict between the Act and the laws of a foreign jurisdiction that may hinder reporting (for example, if the terms of a concession or license are confidential and not to be disclosed by the reporting entity) and engaging directly with jurisdictions where measures exist that may raise concerns regarding the application of the Act. Reporting entities that encounter challenges in meeting the reporting requirements under the Act may provide details of these circumstances to NRCan.
The Technical Reporting Specifications contain step-by-step instructions on how to complete the reporting template in XLS or PDF form and how the form is to be made available to the public and NRCan, and includes requirements for project-level reporting and online reporting:
- Project-Level Reporting: Payments are required to be reported on a project-level basis when they can be attributed to a specific project. The Technical Reporting Specifications adopt the EU Directive definition of "project" (i.e. "the operational activities that are governed by a single contract, license, lease, concession or similar legal agreements and form the basis for payment liabilities with a government"). Like the EU Directive, the Technical Reporting Specifications also confirm that "if multiple such agreements are substantially interconnected, this shall be considered a project," where "substantially interconnected" means "forming a set of operationally and geographically integrated contracts, licences, leases or concessions or related agreements with substantially similar terms that are signed with a government, giving rise to payment liabilities".
- Attestation: Each report is required to include an attestation, either from a director or officer of the reporting entity that the report is true, accurate and complete in all material respects for the purposes of the Act or an independent auditor or accountant that in its opinion, the financial information presents fairly, in all material respects for the purposes of the Act, the reported payments.
- Online Reporting: A reporting entity is required to publish the completed report on the internet in XLS or PDF format and provide to NRCan a functional and direct web link to the report, within 150 days of the end of each of its financial years.
Concurrently with the issuance of the implementation tools for the Act for public comment, NRCan issued a substitution determination, confirming that reports submitted to European Union and European Economic Area member states that have implemented the EU Directive at a national level may be submitted to the Minister of Natural Resources as a substitute for a report prepared under the Act, provided that reporting entities include an attestation statement in their report and indicate which jurisdiction the substituted report was originally filed, and that they file within the timeframe prescribed by the other jurisdiction. Reporting entities must also notify NRCan within the deadline under the Act if the filing deadline in the other jurisdiction extends beyond 150 days after the end of its financial year.
Last Call for Comments
In view of the September 22, 2015 public consultation deadline, entities that are likely to have to file reports under the Act should view this as the last opportunity for making any comments on issues related to reporting payments under the Act.
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.