Natural Resources Canada has released Guidance and Technical Reporting Specifications documents related to the Extractive Sector Transparency Measures Act (the "Act"), which imposes annual reporting requirements for payments made by Canadian extractive companies (mining, oil and gas) to foreign and domestic governments, including Aboriginal governments. Reporting entities to whom the Act applies must enrol with Natural Resources Canada to submit their reporting and are encouraged to do so by June 30, 2016.
The Act, which is administered by Natural Resources Canada, came into force on June 1, 2015. The Act solidifies Canada's international commitment to increase transparency and deter corruption in the extractive sector. Please see our June 3, 2015 Update, Mandatory Payment Disclosure Rules Now in Force, for a detailed summary of the Act.
Technical Reporting Specifications
The Technical Reporting Specifications details the form and manner of the reporting process, including instructions on how to complete the reporting template.
Reporting entities must provide their reports no later than 150 days after the end of each of the entity's financial years. To submit their reports, reporting entities must enrol with Natural Resources Canada by submitting a Contact Form. Reporting entities are encouraged to enrol before June 30, 2016. Once enrolled, Natural Resources Canada will assign a unique ESTMA identification number which must be referenced in all future correspondence between Natural Resources Canada and the reporting entity.
The Contact Form and reporting templates are available on the Government of Canada Website.
The Technical Reporting Specifications provides guidance on how payments are to be reported, including that:
- payments must be disclosed on a cash accounting basis (i.e., based on when the payment is made);
- reports should round payments to the nearest $10,000;
- payments must be broken down to indicate which payee received the payment;
- payments must be broken down to the project level;
- reports must include the total amount of each payment category to each payee and project; and
- entities must report in Canadian currency or in the currency of the reporting entity, and reports must use only one type of currency.
Each report must include an attestation statement provided either (i) by a director or officer of the reporting entity; or (ii) through an independent audit.
Reporting entities must publish their reports online so they are available to the public and must provide a link to the report to Natural Resources Canada within 150 days following the end of their financial year. Reports must be publicly available for at least five years from the date they were published and provided to Natural Resources Canada, and should all be available at the same link. Reporting entities must keep records of their payments for at least seven years from the date the payment was published.
The Guidance is intended to help businesses in the exploration and extractive sectors understand the requirements of the Act and provides general information on:
- the scope of commercial development of oil, gas and minerals;
- entities which are subject to the Act; and
- payments to be reported under the Act.
Commercial Development of Oil, Gas and Minerals
The commercial development of oil, gas or minerals includes exploration, extraction and the acquisition or holding of a permit, licence or lease or any other authorization to carry out the exploration or extraction of oil, gas or minerals.
In the Guidance, Natural Resources Canada has clarified that exploration or extraction refers to the key phases of commercial activity during the lifecycle of an oil, gas or mineral project and extends from prospecting and exploration for oil, natural gas or minerals to the closure, remediation and reclamation of a project. The acquisition or holding of a permit, licence or lease, or any other authorization is intended to capture the permitting process, including applications for permits and community consultations.
Commercial development does not extend to ancillary or preparatory activities (such as manufacturing equipment or constructing extraction sites) and does not include post-extraction activities (such as refining, smelting, marketing and distribution).
Entities Subject to the Act
The Act applies to any entity, including controlling entities, engaged in the commercial development of oil, gas or minerals. The entity must also:
- be listed on a stock exchange in Canada; or
- have a place of business in Canada,
do business in Canada or have assets in Canada and, for at least
one of its two most recent financial years, meet at least two of
the following conditions:
- have at least $20 million in assets;
- have generated at least $40 million in revenue; and
- employ an average of at least 250 employees.
Natural Resources Canada has stated that businesses that provide goods and/or services associated with or related to commercial development of oil, gas or minerals likely do not constitute "Entities" under the Act. Similarly, contractors that provide goods or services associated with or in relation to commercial development of oil, gas or minerals are not considered "Entities" by virtue of their contractual arrangements with a "Reporting Entity" under the Act.
Payments to be Reported Under the Act
Each reporting entity must report all payments to foreign and domestic governments, including Aboriginal groups, made to the same payee in relation to the commercial development of oil, gas or minerals that are at least in the prescribed amount for a particular category of payment or, where no amount is prescribed, $100,000. Such payments include:
- taxes, other than consumption taxes and personal income taxes;
- 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, discover and production bonuses;
- dividends other than dividends paid as ordinary shareholders; or
- infrastructure improvement payments.
The Guidance describes in detail each of these categories of payments.
Natural Resources Canada has clarified that payees include all governments at any level, including national, regional, state/provincial or local/municipal, as well as crown corporations and other state-owned enterprises exercising or performing a power, duty or function of government. Reporting entities must consider the facts and circumstances to determine whether a particular organization or institution meets the criteria of payee. Reporting on payments made to Aboriginal governments in Canada has been deferred to payments made beginning on June 1, 2017.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.