Canada: Are You Ready For ESTMA?

Last Updated: November 29 2016
Article by Kelsey C. Clark and Kyle Isherwood


On June 1, 2015, the federal government enacted new reporting and transparency obligations for the extractive sector — the Extractive Sector Transparency Measures Act (ESTMA). ESTMA is part of a global effort to stop corruption in the extractive sector and requires public disclosure of payments made by entities to governments. Similar legislation has been enacted in the European Union and the United States.

Does ESTMA apply to you?

Any corporation, trust, partnership or unincorporated organization (but not individuals) involved in the commercial development of oil, gas or minerals, or that control companies involved in the commercial development of oil, gas or minerals is potentially subject to ESTMA. For the purposes of ESTMA, commercial development of oil, gas and minerals includes exploration, extraction or the acquisition or holding of a licence, lease or other authorization to carry out exploration or extraction.

There are two ways that an entity involved in the commercial development of oil, gas, and minerals becomes subject to ESTMA. First, if an entity is listed on a Canadian Stock Exchange, ESTMA applies. Second, if an entity is not listed on a Canadian stock exchange, ESTMA applies if:

  1. The entity does business or has assets in Canada (even if such business or assets are not related to the entity's commercial development of oil, gas, and minerals), AND
  2. The entity meets two of the following conditions in one of the two most recent financial years:
  • Had $20 million in assets,
  • Generated $40 million in revenue,
  • Employed an average of 250 employees.

What does it mean if ESTMA applies to you?

Generally speaking, ESTMA requires that entities make reports outlining payments made to governments.

Before any report can be filed, any entity subject to ESTMA must enroll with Natural Resources Canada as an ESTMA reporting entity. Natural Resources Canada was encouraging enrolment by June 30, 2016, so entities not already enrolled, should take steps to do so as soon as possible.

Under ESTMA, all ESTMA reporting entities must report payments made to a variety of government bodies, or "payees", both in Canada and abroad. Payees include bodies established by two or more governments and any trust, board, commission, corporation or authority that exercises or performs a function of government for a government.

There are two important things to note about who is defined as a payee. First, payments to state-owned enterprises are unlikely to be included unless the enterprises are performing a power, duty or function of government. Second, payments to aboriginal governments are included. However, the reporting of payments to aboriginal governments is deferred until financial years starting after June 1, 2017.

Not all payments to payees must be reported — there are limitations on what must be reported. First, only payments related to the commercial development of oil, gas or minerals must be reported. Second, the payments must fall into one of the following categories:

- Taxes (other than consumption taxes and personal income taxes)

- Royalties

- Fees

- Production entitlements

- Bonuses, including signature, discovery and production

- Dividends (other than paid as ordinary shareholders)

- Infrastructure payments

Third, only payments that reach a de minimis threshold must be reported. Specifically, a reporting entity only needs to disclose payments within a category made to the same payee if the total amount of the payments to such payee during the financial year is at least $100,000. Note that the payments do not need to be in cash, and payments in kind are included.

A report filed in another jurisdiction can substitute for an ESTMA report if the Minister of Natural Resources determines it to be an acceptable substitute. Currently, only reports under the European Union's Accounting Directive and Transparency Directive have been determined to be substitutable. Similarly, wholly-owned subsidiaries do not need to file their own report if the report of the parent covers them.

When and where do you need to submit your report?

Annual reports must be filed and published within 150 days of the financial year end of an ESTMA reporting entity. ESTMA only applies to financial years that began after June 1, 2015. So, if an entity's financial year end is December 31st, the first annual report must be filed and published by May 30, 2017. The annual reports must be published on a publicly accessible website and remain available to the public for 5 years. Records of the payments must be kept for seven years.

What happens if you are non-compliant?

If a reporting entity does not file a report, knowingly falsifies a report or structures payments to avoid reporting obligations it has committed an offence under ESTMA and could be fined up to $250,000. This fine can apply to directors and officers who authorize or assent to the participation of an offence. Each day that an offence is not corrected constitutes a new offence also punishable with a $250,000 fine and there is no cap on the total amount of the fines. However, there is a due diligence defence for corporations which have done all they can to comply but still find themselves non-compliant.

What should you do to prepare?

If ESTMA applies to an entity, then it should be enrolled with Natural Resources Canada as an ESTMA reporting entity. Also, policies and procedures should be implemented within the organization to ensure that all payments to governments are tracked and recorded. Records of the payments must be stored and the ESTMA reports should be available on the entity's public website.

Additional Guidance

For additional guidance and discussion of ESTMA, please refer to previous BD&P articles on the subject.

In addition, the final implementation tools for entities required to comply with ESTMA are available on the website of the Department of Natural Resources and include Guidance on the reporting requirements, Technical Reporting Specifications on the form and manner of reporting and the Contact Form for enrollment as reporting entities.

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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