Canada's Fighting Against Forced Labour and Child Labour in Supply Chains Act ("Supply Chains Act") came into force on Jan. 1, 2024.
By the May 31, 2024 filing deadline, 5,650 entities reports filed reports as required by the Supply Chains Act.
According to the Minister of Public Safety's 2024 Annual Report to Parliament on the Fighting Against Forced Labour and Child Labour in Supply Chains Act, no orders were made, and no charges were laid against any person or entity under the Supply Chains Act. In the first year of reporting, Public Safety Canada prioritized raising awareness of the reporting requirements to encourage meaningful action, therefore no enforcement. Public Safety Canada has yet to announce enforcement priorities for the second year of reporting.
This update is the first in a series focused on compliance with the Supply Chains Act. I will be examining its terms, its enforcement, the guidance published by Public Safety Canada and the critical steps businesses need to take to prevent and to reduce the risk that forced labour or child labour is used in business operations and supply chains.
In 2024, the first year of reporting, many businesses had challenges interpreting the Supply Chains Act and assessing their compliance obligations thereunder. On December 20, 2023, 11 days before the Supply Chains Act was to come into force, Public Safety Canada published its first iteration of guidance for businesses on the Supply Chains Act. That guidance was subsequently amended, and those amendments helped with some of the challenges but also raised additional concerns for businesses as they endeavoured to align the guidance with the black-letter law of the Supply Chains Act.
For businesses planning their 2025 report under the Supply Chains Act, I recommend that they carefully review the updated "Guidance for entities" published by Public Safety Canada on November 15, 2024 ("Updated Guidance"). To assist, the following are some of its key elements:
Five of the Updated Guidance's key elements
- Definition of "goods" "Goodsrefers to tangible physical property that is the subject of trade and commerce, understood in the ordinary sense of the word. Real property, electricity, software services and insurance plans are excluded from this definition." The interpretation of "goods" set out in the Updated Guidance should facilitate a clearer understanding of the requirements for compliance under the Supply Chains Act.
- Definition of "entity" – having assets in Canada "Having assets in Canada refers to any tangible property in Canada owned by a person or business. An organization should not include intangibles such as intellectual property, securities and goodwill in its assessment, when determining whether it has assets in Canada." This interpretation may exclude many parent corporations as their sole connection to Canada may have been their ownership of shares of a Canadian subsidiary.
- Definition of "entity" – business
presence in Canada"
An organization may determine if it does business in Canada by evaluating the factors considered by the Canada Revenue Agency when determining if a person is "carrying on business in Canada" for GST/HST purposes."
The factors referred to above are very detailed and, in many cases, may already have been reviewed by the business as part of its tax planning.
- Triggering a reporting obligation "Entities solely involved in distributing and selling are not expected to report under the Act. Public Safety Canada will not seek enforcement action in those instances." This provides additional clarity that entities do not have to report under the Act if they (i) only sell and/or distribute goods, and (ii) do not produce or import goods or control an entity that engages in producing or importing goods.
- Importing goods into Canada "An
entity is importing goodsif the entity is the true importer that,
in reality, caused the goods to be brought into Canada. This is
generally, the entity that accounts for, or pays the duties on the
goods being imported. Note that customs brokers, express couriers,
trade consultants and other third-parties authorized to transact
business on behalf of the importer, or to account for goods in lieu
of the importer, will generally not be considered importers i.e.,
because they will usually not be the person that, in reality,
caused the goods to be imported."
"Only those entities directly engaged in the production of goods, importation of goods or controlling an entity engaged in these activities are required to submit a report."
This element of the Updated Guidance will be very helpful to the many businesses that faced challenges interpreting "importing goods' in 2024 when determining their reporting obligations.
Start preparing for your 2025 supply chain reporting
As businesses prepare for their 2025 filings, staying updated on Public Safety Canada's enforcement priorities and any additional guidance will be critical.
There are numerous other key elements of the Updated Guidance to carefully review and consider. They will be addressed, together with the updated questionnaire, in the next Compliance Update on Canada's Fighting Against Forced Labour and Child Labour in Supply Chains Act.
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