Law and policy

Policies and practices

What, in general terms, are your government’s policies and practices regarding oversight and review of foreign investment?

Canada has a single foreign investment statute of general application, the Investment Canada Act, providing both for ‘net benefit reviews’ and reviews on national security grounds:

Net benefit review

The direct acquisition of control of a Canadian business by an entity that is ultimately controlled outside of Canada is subject to a suspensive mandatory pre-merger filing and approval when the applicable review threshold is exceeded. Although Canada welcomes foreign investment, in such circumstances, a non-Canadian investor will be required to satisfy the relevant minister that the transaction will likely be of ‘net benefit’ to Canada to obtain approval. It is typical for a non-Canadian investor to agree to give written undertakings to the government of Canada to secure approval.

The review threshold first varies as a function of the foreign investor: higher thresholds apply where the purchaser is a private-sector trade agreement investor or a private-sector WTO investor.

A lower threshold applies to state-owned (or SOE) WTO investors, and additional criteria are considered by the Canadian government in determining whether a reviewable investment by an SOE is of ‘net benefit’ to Canada.

A lower review threshold also applies where the Canadian business qualifies as a ‘cultural business’.

In limited circumstances, where the acquired Canadian business is a cultural business or where the purchaser is ultimately controlled in a non-WTO member state, an indirect acquisition of control of a Canadian busi­ness (ie, the acquisition of control of a corporation outside Canada that con­trols an entity carrying on a Canadian business) may also be subject to a ‘net benefit review’.

If the relevant financial threshold for a ‘net benefit review’ under the Investment Canada Act is not met, an administrative notification form must be filed by the foreign investor any time before the acquisition of control of a Canadian business or within 30 days of the implementation. An administrative notification form must also be filed where a non-Canadian investor establishes a new Canadian business.

National security review

Since 2009, the Investment Canada Act also grants the Canadian government the power to review all proposed investments (including minority investments and the establishment of a new Canadian business) where the relevant minister has ‘reasonable grounds to believe that an investment by a non-Canadian could be injurious to national security’. In late 2016, the Canadian government issued guidelines that have shed some light on circumstances that may draw investors and parties involved in the investment into the realm of a national security review. The guidelines provide a list of factors that the Canadian government considers when assessing whether an investment poses a national security risk. These factors focus on defence, technology, and critical infrastructure and supply.

Main laws

What are the main laws that directly or indirectly regulate acquisitions and investments by foreign nationals and investors on the basis of the national interest?

As indicated above, the Investment Canada Act is the main legislation that regulates investments by non-Canadians.

The Canadian Competition Act also provides for the review of investments, both for foreign and domestic investors. Further, investments in transportation businesses that exceed the pre-merger notification thresholds under the Competition Act may be subject to pre-closing review under the Canada Transportation Act.

Although the Investment Canada Act review process is a separate process from the Competition Bureau’s review under the Competition Act, the Competition Bureau and the Investment Review Division (IRD) of Innovation, Science and Economic Development communi­cate and cooperate when both are reviewing the same transaction. For example, the effect of the investment on competition is one of the ‘net benefit’ factors under the Investment Canada Act (see question 16) and the IRD would generally not finalise its review and, accordingly, the relevant minister would generally not make a decision regarding the likely net benefit of an investment, until after the Competition Bureau’s analysis is complete. If there is any concern registered under the Competition Act, the relevant reviewing authority under the Investment Canada Act will generally encourage an applicant to deal directly with the Competition Bureau under the Competition Act. In April 2018, the Competition Bureau and the IRD issued an administrative note formalising the nature and scope of communication between the two organisations.

Further discussion regarding the application of the Competition Act and Canada Transportation Act is beyond the scope of this chapter.

Scope of application

Outline the scope of application of these laws, including what kinds of investments or transactions are caught. Are minority interests caught? Are there specific sectors over which the authorities have a power to oversee and prevent foreign investment or sectors that are the subject of special scrutiny?

Acquisition of control

A pre-merger ‘net benefit review’ or notification is only required where a non-Canadian acquires control of an existing Canadian business (notifications are also required for the establishment of a new business in Canada by a foreign investor).

The acquisition of control of a Canadian business is effected by acquiring:

  • substantially all of the assets of a Canadian business; or
  • the majority of the voting interests in an entity such as a corporation, partnership, joint venture or trust that carries on, or controls, a Canadian business (ie, de jure control test).

The acquisition of a third or more of the voting shares of a corporation that controls, or carries on, a Canadian business will give rise to a rebuttable presumption that control has been acquired. The acquisition of less than a third of the voting shares of such a corporation is deemed not to be an acquisition of control.

Notwithstanding these deeming and presumption provisions, in the case of cultural industries, the Minister can look at control-in-fact evidence and make a determination that an acquisition of control has taken place.

Procedure

The Investment Canada Act, in essence, contains two procedures:

  • non-Canadian investors that acquire control of Canadian businesses must, where the applicable review threshold is exceeded (see question 8), submit their proposed investments for pre-closing review and ‘net benefit’ approval by the Canadian government; and
  • non-Canadian investors must submit a notice (which can be filed post-closing) to the Canadian government when they acquire control of an existing Canadian business and the applicable review threshold is not met or when they start up new Canadian businesses.

A ‘Canadian business’ is defined as a business carried on in Canada that has a place of business in Canada; individuals in Canada that are employed in connection with the business; and assets in Canada used to carry on the business.

Once the non-Canadian investor submits a completed review application or notice, as applicable, the government screens the invest­ment for the following purposes:

  • in the case of an investment subject to the pre-closing review and approval procedure, it is assessed to determine whether it is ‘likely to be of net benefit to Canada’ (see question 16 for ‘net benefit’ factors);
  • in the case of an investment that is subject to the notification procedure, with the exception of cultural businesses, the investment is not assessed for its net benefit to Canada;
  • if it is in a ‘cultural business’, the notice may trigger a government decision to require a ‘net benefit’ review and approval procedure; and
  • all applications and notifications filed under the Investment Canada Act are screened for and subject to review for potential national security concerns.
Special scrutiny

All investments (including minority investments) may be assessed to determine whether they could be injurious to Canada’s national secu­rity under the national security regime (created in 2009). Until rela­tively recently, publicly available information regarding the Canadian government’s approach to national security reviews has been scant. This lack of information, coupled with the fact that a number of impor­tant terms regarding the national security scheme are not defined in the legislation, created uncertainty for foreign investors. With the highly anticipated release of its Guidelines on the National Security Review of Investments in late 2016, the Canadian government shed some light on circumstances that may draw investors and parties involved in the investment into the realm of a national security review (see question 8).

Investments by SOEs are given special attention under the Investment Canada Act (see question 5).

Reviews involving cultural businesses will also take into account gov­ernment policies that limit investment by non-Canadians in such busi­nesses (see questions 8 and 9).

Definitions

How is a foreign investor or foreign investment defined in the applicable law?

Review under the Investment Canada Act is triggered by investments by ‘non-Canadians’. Under the Act, ‘non-Canadian’ means ‘an indi­vidual, a government or an agency thereof or an entity that is not a Canadian’. A ‘Canadian’ means one of the following:

  • An entity that is Canadian-controlled. The Investment Canada Act sets out a number of tests and presumptions for determining whether an entity is Canadian-controlled (and therefore not a ‘non-Canadian’). For example, an entity will be Canadian-controlled where Canadians own a majority of the voting interests in the entity.
  • A Canadian citizen.
  • A permanent resident within the meaning of the Immigration Act (Canada) who has been ordinarily resident in Canada for not more than one year after the time at which he or she first became eligible to apply for Canadian citizenship.

The term ‘non-Canadian’ includes Canadian-incorporated entities that are ultimately controlled outside Canada.

For investments involv­ing an SOE, there are special rules regarding the determination of ‘non-Canadian’, which broadens the reach of the Investment Canada Act (see question 5).

Special rules for SOEs and SWFs

Are there special rules for investments made by foreign state-owned enterprises (SOEs) and sovereign wealth funds (SWFs)? How is an SOE or SWF defined?

There are specific SOE-related provisions under the Investment Canada Act in respect of the following: the definition of SOE; the threshold for review, control and acquisition of control rules; and ‘net benefit’ review.

Investments by SOE investors may also receive greater scrutiny under the Investment Canada Act. In 2012, following the approvals of two high-profile acquisitions by foreign SOE investors of Canadian businesses in the oil and gas sector, the Canadian government announced that investments by foreign SOEs to acquire control of a Canadian oil sands business will, going forward, be found ‘to be of net benefit, only in an exceptional circumstance’. However, in 2017, the Liberal government stated that Canada welcomes Chinese investment, including in the oil sands.

Definition of SOE

An SOE is broadly defined under the Investment Canada Act. An SOE means:

  • a foreign government or its agency;
  • an entity that is controlled or influenced, directly or indirectly by a foreign government or its agency; and
  • an individual acting under the direction or influence of a foreign government or its agency, directly or indirectly.
SOE review threshold

The higher review thresholds for private-sector WTO or trade agreement investors based on the enterprise value of the acquired Canadian business do not apply to SOE investors.

The review threshold for investments by SOE WTO investors is C$416 million (2019) in asset value. This threshold is adjusted annually to reflect the change in nominal gross domestic product in the previous year.

Control and acquisition of control rules for SOEs

As discussed in other questions, subject to certain exemptions, where a transaction involves the ‘acquisition of control’ of a Canadian business by a non-Canadian and the acquired business exceeds certain financial thresholds, the transaction may be reviewable by the Canadian govern­ment under the Investment Canada Act. The Investment Canada Act contains specific provisions regarding both the determination of whether an entity is Canadian-controlled and the ‘acquisition of control’ where an SOE is involved.

Control

Under the Investment Canada Act, even if an entity qualifies as a Canadian (and, thus, not caught by the Investment Canada Act), the Minister may nevertheless determine that the entity is not Canadian if he or she determines that the entity is controlled in fact by an SOE. The effect of this rule is that it broadens the reach of the Investment Canada Act where a foreign state is involved. For example, the Minister’s deter­mination that an investor, which would otherwise be Canadian, is an SOE may give the Canadian government the power to challenge the investment under the national security review regime. Similarly, the Minister can make a determination that a foreign investor is con­trolled in fact by an SOE. The effect of this provision is that where the Minister determines that a foreign investor is controlled by an SOE and the investor is making an acquisition of control of a Canadian business, then the applicable review threshold is the lower SOE-specific threshold and not the significantly higher threshold for non-SOE investments.

Acquisition of control

The Investment Canada Act contains detailed deeming and presumption provisions to determine acquisition of control. Generally speaking, a minor­ity investment is not an acquisition of control under these provisions and, as such, the investment would not be reviewable under the Act. However, notwithstanding these provisions, the SOE rules allow the Minister to make a determination that there has been an ‘acquisition of control in fact’ by an SOE. The effect of this is that an otherwise non-reviewable acquisition may be subject to review where it is made by an SOE and the lower SOE-specific review threshold is met.

The Minister may make the above determinations based on ‘any information and evidence made available to the Minister’. Further, if an entity does not provide information that the Minister has requested and considers necessary to make the determination, the Minister ‘may declare’ that an entity is not a Canadian-controlled entity, the entity is controlled in fact by an SOE or that there has been an acquisition of control by an SOE.

The Minister’s above determinations may be made retroactively. Consequently, any indirect or tangential involvement by a foreign state potentially gives rise to uncertainty. Because of the retroactive powers that the Minister of Innovation, Science and Industry has to review transactions, it is prudent for parties to consider the feasi­bility of pre-emptive consultation with the Minister and his or her staff.

Net benefit review of SOE investments

The Canadian government’s SOE administrative guidelines provide that in determining whether a reviewable investment by an SOE is of ‘net benefit’ to Canada, the Minister will examine the corporate govern­ance and reporting structure of the non-Canadian investor as part of the assessment of the factors enumerated in the Investment Canada Act (see question 16 for ‘net benefit’ factors). This examination will include whether the non-Canadian adheres to Canadian standards of corporate governance (including, for example, commitments to transparency and disclosure, independent members of the board of directors, independ­ent audit committees and equitable treatment of shareholders), and to Canadian laws and practices, including adherence to free market principles. The Minister will assess the effect of the investment on the level and nature of economic activity in Canada, including the effect on employment, production and capital levels in Canada. The examination will also cover how and the extent to which the non-Canadian is owned, controlled by a state or its conduct and operations are influenced by a state. The Minister will also assess whether the Canadian business to be acquired will likely operate on a commercial basis, including with regard to:

  • where to export;
  • where to process;
  • the participation of Canadians in its operations in Canada and elsewhere;
  • the impact of the investment on productivity and industrial effi­ciency in Canada;
  • support of ongoing innovation, research and development; and
  • the appropriate level of capital expenditures to maintain the Canadian business in a globally competitive position.

An SOE should therefore anticipate that it will be required to provide undertakings beyond those normally expected of a privately owned company (see question 20). Indeed, the SOE administrative guide­lines state that non-Canadian investors will be expected to address the inherent characteristics of SOEs (specifically that they are suscep­tible to state influence) in their plans and undertakings. Investors will also need to demonstrate their strong commitment to transparent and commercial operations. The SOE administrative guidelines also sug­gest undertakings that SOEs may offer to demonstrate ‘net benefit’, including the appointment of Canadians as independent directors on the board of directors, the employment of Canadians in senior man­agement positions, the incorporation of the business in Canada and the listing of shares of the acquiring company or the Canadian business being acquired on a Canadian stock exchange.

Relevant authorities

Which officials or bodies are the competent authorities to review mergers or acquisitions on national interest grounds?

For acquisitions reviewed under the Investment Canada Act, the IRD of Innovation, Science and Economic Development is the govern­ment department responsible for the administration of the Investment Canada Act for all investments, except those involving a cultural busi­ness (see question 8).

The Department of Canadian Heritage (Cultural Sector Investment Review) is responsible for the administration of the Investment Canada Act for investments involving a cultural business.

The review of an investment is carried out by the IRD, the Cultural Sector Investment Review (with respect to cul­tural matters), or both, who then make a recommendation to the relevant minister (Minister of Innovation, Science and Industry or Minister of Canadian Heritage for cultural transactions). The rel­evant minister decides whether or not the investment is likely to be of ‘net benefit to Canada’.

Notwithstanding the above-mentioned laws and policies, how much discretion do the authorities have to approve or reject transactions on national interest grounds?

The Minister of Innovation, Science and Industry (or Minister of Canadian Heritage for cultural transactions) will only approve the acquisition of control of a Canadian business if he or she is satisfied that the transaction is likely to be of ‘net benefit’ to Canada (see question 16). The Investment Canada Act specifies the informa­tion that the Minister shall take into account in satisfying him or herself that the investment is likely to be of ‘net benefit’ to Canada:

  • information submitted by the investor;
  • information submitted by the entity from which control of the Canadian business is being acquired;
  • written undertakings given by the investor;
  • representations by provinces of Canada that are likely to be signifi­cantly affected by the investment; and
  • ‘net benefit’ factors.

As long as the Minister has not taken into account factors that are not listed above, he or she may decide whether an investment is likely to be of ‘net benefit’ to Canada and as such, whether a transaction is approved or rejected.

Transactions that could be ‘injurious to national security’

As discussed in question 8, a number of important terms in the national security review scheme are not statutorily defined, which creates wide discretion for the Minister of Innovation, Science and Industry (or Minister of Canadian Heritage for cultural trans­actions) and some uncertainty for foreign investors. That said, the government’s 2016 Guidelines on the National Security Review of Investments is instructive as to the type of investments that the gov­ernment is likely to assess under the national security review regime.

Procedure

Jurisdictional thresholds

What jurisdictional thresholds trigger a review or application of the law? Is filing mandatory?

After concluding that the Investment Canada Act applies to an invest­ment, the next step is to determine the appropriate screening proce­dure. As discussed in question 3, where a new Canadian business is established or an investment below the applicable review threshold is made, an administrative notification form must be filed. Whereas higher financial value acquisitions (and acquisitions of cultural businesses) require a more onerous review procedure. To determine whether a review is required (versus an administrative notification form), one must examine the size of investment, whether the investor or the vendor is controlled in one or more countries that are members of the WTO, whether the investment is a private sector trade agree­ment investment, whether the investor is an SOE, whether the acquisi­tion is direct or indirect, and whether the target’s business is cultural or gives rise to national security concerns.

Higher reviewable thresholds for private sector trade agreement and WTO investors

One of following two thresholds will apply to most direct acquisitions of control of Canadian businesses by non-Canadian, non-SOE investors from WTO member states:

  • C$1.568 billion in enterprise value of the Canadian target for private sector trade agreement investors; or
  • C$1.045 billion in enterprise value of the target for other non-SOE investors from WTO member states.

The higher C$1.568 billion review threshold came into place in 2017 as a result of the Canada-European Union Comprehensive Economic and Trade Agreement Implementation Act (CETA), and currently applies to non-SOE investors ultimately controlled in EU member states, the United States, Mexico, South Korea, Chile, Peru, Colombia, Honduras, Panama, as well as Australia, Japan, New Zealand, Singapore and Vietnam (under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)).

These two thresholds are adjusted annually to reflect the change in nominal gross domestic product in the previous year.

The Investment Canada Act provides for complex formulas for calculating the enterprise value of Canadian businesses acquired by way of share (public or non-public entities) or asset acquisition.

Lower reviewable thresholdsSOE WTO investors

As indicated in question 5, the review threshold for investments by SOE WTO investors is C$416 million (2019) in asset value.

Non-WTO

For direct acquisitions (see ‘Indirect acquisitions’, below), if both the purchaser and vendor are each ultimately controlled in a non-WTO member state, the review threshold is C$5 million in asset value.

Cultural businesses

Also, where the Canadian business being acquired is a cultural business and is directly acquired, the reviewable threshold is C$5 million in asset value regardless of whether the purchaser or vendor is ultimately controlled in a WTO member state. A ‘cultural business’ is a business that carries on any of the following activities:

  • publication, distribution or sale of books, magazines, periodicals or newspapers in print or machine-readable form;
  • production, distribution, sale or exhibition of film or video products;
  • production, distribution, sale or exhibition of audio or video music recordings; or
  • publication, distribution or sale of music in print or machine-readable form.

It is important to note that even if an acquisition by a non-Canadian of a ‘cultural business’ does not trigger the statutory reviewable threshold, a review may, nonetheless, be ordered where the ‘Governor in Council considers it in the public interest’.

Indirect acquisitions

The above thresholds relate to direct acquisitions. If the investment is an indirect acquisition (acquisition of control of a corporation outside Canada that controls an entity carrying on a Canadian business) the following thresholds apply if the target is a cultural business or if purchaser and target are each ultimately controlled in a non-WTO member state (or Canada in the case of the target), the threshold for review is C$50 million in asset value; however, if the Canadian assets being acquired comprise more than 50 per cent of all of the assets being acquired, the threshold for review is C$5 million in asset value.

As a result, if the purchaser or target is from a WTO member state and the target is not a cultural business, an indirect acquisition of control of a Canadian business is not reviewable. Instead, only notice of the investment must be given to the Canadian government (see ‘Notification under the Investment Canada Act’, below).

Transactions that could be ‘injurious to national security’

The Canadian government has the power to review all proposed investments where the relevant minister (Minister of Innovation, Science and Industry or Minister of Canadian Heritage for cultural transactions) has ‘reasonable grounds to believe that an investment by a non-Canadian could be injurious to national security.’ There is no statutory definition of ‘national security’. No financial threshold will apply to a national security review. A national security review can also apply to minority investments. This means that any transaction that involves a non-Canadian is potentially subject to a national security review. After a national security review, the Minister may deny the investment, ask for undertakings, provide terms or conditions for the investment or, where the investment has already been made, require divestment. A national security review can occur before or after closing.

The major concern for foreign investors under a review for ‘national security reasons’ is that a number of important terms regarding the ‘national security’ review scheme have not been defined in the legislation. This lack of defini­tion creates a wide discretion for the Minister and some uncertainty for foreign investors. At the end of 2016, the Canadian government released its highly anticipated Guidelines on the National Security Review of Investments, which sheds some light on circumstances that may draw investors and parties involved in the investment into the realm of a national security review. The guidelines provide a list of factors that the Canadian government considers when assessing whether an investment poses a national security risk. These factors focus on defence, technology, and critical infrastructure and supply. The Canadian government may take into account:

  • the potential effects of the investment on Canada’s defence capa­bilities and interests;
  • involvement in the research, manufacture or sale of goods and technology identified in section 35 of the Defence Production Act;
  • the potential of the investment to enable foreign surveillance or espionage;
  • the potential of the investment to hinder current or future intelli­gence or law enforcement operations;
  • the potential impact of the investment on Canada’s international interests, including foreign relationships;
  • the potential of the investment to involve or facilitate the activities of terrorists, terrorist organisations or organised crime and other illicit actors;
  • the potential effects of the investment on the transfer of sensitive technology or know-how outside of Canada;
  • the potential impact of the investment on the security of Canada’s critical infrastructure. Critical infrastructure refers to processes, systems, facilities, technologies, networks, assets and services essential to the health, safety, security or economic well-being of Canadians and the effective functioning of government;
  • the potential impact of the investment on the supply of critical goods and services to Canadians; and
  • the potential impact of the investment on the supply of goods and services to the government of Canada.

Since the national security review process was introduced in March 2009, formal national security reviews have been ordered at least 15 times. The outcomes of these reviews include: investor was directed to not implement the proposed investment (four cases), investor was ordered to divest control of the Canadian business (five cases), investment was authorised with conditions that mitigated the identi­fied national security risks (four cases) and, in two cases, the investor withdrew its application prior to a final order being made. Many more investments have been the subject of informal national security review that, for the most part, resulted in clearance.

Notification under the Investment Canada Act

If the relevant financial thresholds for review under the Investment Canada Act are not met, an administrative notification form must be filed by the investor any time before the implementation of the invest­ment or within 30 days of the implementation.

Some of the more onerous reporting requirements include pro­viding information in respect of the investor’s board of directors, five highest paid officers and individuals that own 10 per cent or more of the investor; whether the investor is influenced by a foreign state; and sources of funding for the investments.

Following receipt of the notice, the IRD, the Cultural Sector Investment Review of Canadian Heritage, or both, assess it for completeness and issue a receipt. Eventually, basic details identifying the investor, the target and the nature of the target’s busi­ness will be disclosed on the Ministry’s website.

It is important to note that there are circumstances in which an investment that would not otherwise be reviewable (in other words, subject to notification) is subject to review under the Investment Canada Act. See question 15.

National interest clearance

What is the procedure for obtaining national interest clearance of transactions and other investments? Are there any filing fees? Is filing mandatory?

Application for review

A filing is mandatory for those transactions that are reviewable under the Investment Canada Act (see questions 3 and 8). A review is commenced by the com­pletion and filing of an application for review. The purpose of a review is to satisfy the relevant minister (Minister of Innovation, Science and Industry or Minister of Canadian Heritage for cul­tural transactions) that the investment ‘is likely to be of net benefit to Canada’ (see question 16).

An application for review is a much more detailed document than the administrative notification form, and requires much care in its preparation. A key element in the application for review is the require­ment to set out the investor’s plans for the Canadian business, includ­ing plans typically related to employment, participation of Canadians in the business, and capital investment.

Form and content of the application for review

The preparation of the application for review (which includes the appli­cation form stipulated by government) typically focuses on four main components:

  • collection of data that is specifically required for the application form. For example, the investor will be required to provide infor­mation relating to:
    • its board of directors, five highest paid officers and individuals that own 10 per cent or more of the investor;
    • whether it is influenced by a foreign state; and
    • sources of funding for the investments;
  • collection of supplementary information (the IRD sets out supplementary information that the officials strongly suggest be submitted with the application for review);
  • preparation of the plans for the Canadian business; and
  • in most cases, preparation of a submission that outlines why the proposed investment is likely to be of ‘net benefit’ to Canada.
Plans for the Canadian business

The most important element of any application for review is the articu­lation of the investor’s plans for the target following the acquisition. These plans are the key source of information upon which the relevant minister assesses whether the proposed investment is likely to be of ‘net benefit’ to Canada. Further, the plans are the primary input for the development of the undertakings that the investor is usually required to provide in order to secure approval. The application for review form requests a detailed description of the investor’s plans for the Canadian business with specific reference to ‘net benefit’ factors (see question 16) and the current operations of the Canadian business. The IRD suggests the following list of subjects for the plans:

  • employment (number and type of jobs created or lost);
  • additional investment (increased working capital provisions, expansion);
  • resource processing (value added, extent of processing);
  • utilisation of parts, components and services (requirements of the Canadian business and opportunity for Canadian suppliers to compete in supplying them);
  • exports (percentage of exports compared with total sales, markets served, types of products or services exported);
  • Canadian participation (number of Canadians as employees, managers, directors and owners);
  • productivity and efficiency (new or expanded plant, new equip­ment, rationalisation of activities, training);
  • technological development (nature of research and development (R&D), R&D expenditures and timing, R&D facility, R&D contract in Canada, use and terms and conditions to use licences, patents, etc);
  • product innovation or variety (different or complementary product lines, state-of-the-art products); and
  • international competitiveness (world product mandate, access to international distribution networks).
Filing fee

There are no filing fees under the Investment Canada Act.

Statutory timelines for review

Once the application for review is filed and certified as complete, the relevant minister (Minister of Innovation, Science and Industry or Minister of Canadian Heritage for cultural transac­tions) initially has 45 days within which to decide whether or not the proposed acquisition is likely to be of ‘net benefit to Canada’. Depending on the nature of the Canadian business, the review is carried out by the IRD of Innovation, Science and Economic Development, the Cultural Sector Investment Review of Canadian Heritage (with respect to ‘cultural’ matters), or both, which make a recommendation to the relevant min­ister. Other government bodies, such as provinces where the Canadian business operates and government agencies, such as the Competition Bureau, may be consulted in this process. The review process often includes negotiating undertakings that are requested by the review­ing authority, for instance, as to employment levels and location of important offices and facilities. This can lead to intensive negotiations between the investor and the government. When finalised, these under­takings are legally enforceable by the government.

If the relevant minister is unable to reach a decision during the ini­tial 45-day period then he or she can unilaterally extend the period for a further 30 days or such longer period as may be agreed on consent. These time frames can be further extended if national security issues surface. Upon the expiry of this period, the Minister must render a deci­sion or he or she is deemed to be satisfied that the proposed acquisition is likely to be of net benefit to Canada.

If, at the end of the review period, the Minister sends a notice that he or she is not satisfied that the investment is likely to be of net benefit to Canada, the investor has the right, for 30 additional days (or such further period as may be mutually agreed), to make further representa­tions and submit undertakings to the Minister. Upon the expiry of such additional period, the Minister will, in light of further undertakings or representations, either confirm the original conclusion or advise the applicant that the proposed transaction is approved.

With respect to review time in the past year, of the nine applications reviewed and approved under the net benefit provisions, it took an average of 77 days from certification to approval. In contrast, the average period in 2016-2017 was 84.6 days.

Cultural businesses

Reviews involving cultural businesses will take into account govern­ment policies that limit investment by non-Canadians in such busi­nesses. These policies apply to the publication, distribution or sale of books, magazines and periodicals, and the production, distribution, sale or exhibition of film or video products, or audio or video music recordings. As a practical matter, a non-Canadian investor will find it difficult to obtain Investment Canada Act clearance to acquire or estab­lish a Canadian business in a number of these sectors. In other cultural businesses as well, and notwithstanding the lack of a particular sector policy, a non-Canadian investor will often find it a challenge to gain Investment Canada Act clearance. The Ministry has issued guidelines with respect to the types of issues and undertakings that applicants should be prepared to address during the review process.

Transactions that could be ‘injurious to national security’

As discussed in question 8, the Canadian government has the power to review all investments by non-Canadians on national security grounds. The entry point for national security screening will, in most cases, be the notification and review processes under the Investment Canada Act. Under the applicable regulations, the relevant minister (Minister of Innovation, Science and Industry or Minister of Canadian Heritage for cultural transactions) has 45 days after an appli­cation or notification has been certified, or after the implementation of an investment that does not require notification, to initiate action. An investment that is subject to a national security review after it has already been implemented can be unwound if the Governor in Council (ie, federal cabinet) makes an order directing the non-Canadian to divest itself of its investment or conditions could be imposed on it by order of the Governor in Council.

Where a transaction gives rise to national security risks, parties are advised to file notice of the transaction with the Minister more than 50 days prior to the closing date in order to obtain a pre-clearance (assum­ing the Minister does not order a further national security review).

The Minister initiates a national security review by sending notice to the non-Canadian investor. The Minister can, and likely will, also send a request for information. Following this preliminary procedure, the Minister can either terminate screening or issue another notice, this time ordering a full national security review of the investment. A full national security review could take up to 200 days (or longer with the consent of the investor) from the date of the initial notice of the transaction sent to the Minister.

The Minister can request information from the non-Canadian or any other person involved. The investor will also be given the oppor­tunity to make representations to the Minister. The Minister considers the information, consults the Minister of Public Safety and Emergency Preparedness and other agencies and then sends a report to the Governor in Council with recommendations. The Governor in Council then makes a decision and issues an order that can block the investment, authorise the investment on conditions, or require divestiture (in the case of a completed investment).

Once the national security screening process begins, the deadlines for ministerial decision-making in an Investment Canada Act ‘net ben­efit’ review are postponed. Thus, the two procedures become, in effect, merged and would presumably lead to a synchronised outcome.

Which party is responsible for securing approval?

The investor is responsible for filing an application for review. However, where the acquisition is friendly, it is common for the Canadian busi­ness or seller, or both, to assist the investor by providing supporting information regarding the Canadian business for the investor’s appli­cation for review.

Review process

How long does the review process take? What factors determine the timelines for clearance? Are there any exemptions, or any expedited or ‘fast-track’ options?

See question 9 for the statutory timelines for review. A very limited exception applies and would allow for an earlier closing where the Minister has sent a notice to the investor stating that a delay in clos­ing the transaction would result in ‘undue hardship’ to the investor or ‘would jeopardize the operations of the Canadian business’.

There are actions that the investor can take that may expedite the review process, including ensuring that the appropriate level of information is included in the application for review. The IRD has stated on its website that the most frequent cause of delays in the review of applications is the lack of adequate informa­tion on the investor’s plans for the Canadian business and suggests that plans be described in sufficient detail to enable the reviewing officer to obtain a clear understanding of their intentions. It is also typically help­ful for applicants to provide three-year projections for the Canadian business for employment, sales, exports, capital expenditures and R&D expenditures, where relevant.

Once the application for review has been submitted, it is help­ful to consider the three key stages of the review period and possible actions that an investor may take at or prior to each stage to expedite the review:

  • intergovernmental consultation: depending on the nature of the proposed investment, the officials will interact with the provincial or territorial jurisdiction that is affected by the transaction, other federal government departments, as well as federal and provincial agencies;
  • provision of additional information to the government representa­tives: often the timing of review is affected by the time it takes the investor to prepare and submit information to the government. To the extent that the investor is able to anticipate information likely to be requested by the government, preparation of that material should begin as soon as possible; and
  • negotiating the content and scope of written undertakings to be given to the government, if any (see question 20). To the extent that it is expected that undertakings will be required in support of a proposed transaction, this eventuality should be managed early on in the process. For example, draft undertakings should be prepared in anticipation of the Minister’s request for undertakings so that once the request has been made, the negotiation of the undertak­ings can begin forthwith.

Must the review be completed before the parties can close the transaction? What are the penalties or other consequences if the parties implement the transaction before clearance is obtained?

Subject to the limited exception described in question 11, if a direct acquisition is reviewable, it cannot be completed without the approval of the relevant minister (Minister of Innovation, Science and Industry or Minister of Canadian Heritage for cultural trans­actions).

If a direct transaction is implemented before clearance is obtained, the Minister can seek a court order, which may require the investor to divest control of the Canadian business, dispose of any voting interests or assets acquired by the investor or pay a penalty of up to C$10,000 for each day that the investor is in contravention of the Investment Canada Act, or all of these. An indirect acquisition of control (acquisition of control of a corporation outside Canada that controls an entity carrying on a Canadian business) can be completed before the Minister makes his or her decision.

Involvement of authorities

Can formal or informal guidance from the authorities be obtained prior to a filing being made? Do the authorities expect pre-filing dialogue or meetings?

Early in the evolution of a reviewable transaction, and certainly if a public announcement has been made, it is commonplace to make a courtesy call to the IRD, the Cultural Sector Investment Review (with respect to cultural matters), or both, in order to advise them of the proposed transaction. Generally speaking, how­ever, it is unusual for there to be any pre-filing dialogue or meetings between the investor and the reviewing agency.

With respect to investments that raise national security con­cerns, the Canadian government (in its Guidelines on the National Security Review of Investments) encourages investors to contact the IRD at the earliest stages of the development of their investment projects to discuss their investment. Such meetings may facilitate national security assessments and clarify information requirements that might be useful in the course of an assessment.

When are government relations, public affairs, lobbying or other specialists made use of to support the review of a transaction by the authorities? Are there any other lawful informal procedures to facilitate or expedite clearance?

In most cases, the investor will have legal and financial advisers engaged in respect of a proposed transaction. However, in some complex or sensi­tive cases, the contribution of public relations and government relations experts can be very valuable. Given the Canadian government’s power to undertake a review for ‘national security’ and its special treatment of investments by SOEs referred to in question 5, it is very important for investors that expect to be affected by these types of reviews to develop an appropriate government relations strategy early on when making an investment in Canada that may be reviewable (including considering pre-filing consultations with key government officials). The Canadian government’s recent rejections based on national security grounds (see question 23) highlight the importance of early identification and careful manage­ment of sensitive issues. Careful consideration should be given, as soon as possible, to engaging experts whose experience can make the pro­cessing of a file much smoother for both investor and government alike.

What post-closing or retroactive powers do the authorities have to review, challenge or unwind a transaction that was not otherwise subject to pre-merger review?

National security review

Any transaction that involves a non-Canadian is potentially subject to a national security review, which can occur before or after closing. After the national security review, the minister may deny the investment, ask for undertakings, provide terms or conditions for the investment or, where the investment has already been made, require divestment. The minister has 45 days, after a notification has been certified, or after the implementation of an investment that does not require notification, to initiate a national security review (see question 9).

SOEs

As discussed in question 5, there are provisions under the Investment Canada Act that significantly affect foreign investors whom the Canadian government considers SOEs. The minister has broad pow­ers to declare an entity to be an SOE and to declare an otherwise non-reviewable acquisition by an SOE to be subject to review. Furthermore, the minister may make these determinations retroactively.

Cultural business

As discussed in question 8, even if an acquisition by a non-Canadian of a ‘cultural business’ does not trigger the statutory reviewable thresh­old, a review may, nonetheless, be ordered where the ‘governor in council considers it in the public interest’.

Substantive assessment

Substantive test

What is the substantive test for clearance and on whom is the onus for showing the transaction does or does not satisfy the test?

If a transaction is subject to review (see question 9) the relevant min­ister (Minister of Innovation, Science and Industry or Minister of Canadian Heritage for cultural transactions) must be satisfied that the transaction is ‘likely of net benefit to Canada’. The Minister will only approve the acquisition of control of a Canadian business if he or she is satisfied that the transaction is likely to be of ‘net benefit’ to Canada. The factors that the Minister must consider in his or her ‘net benefit’ determination are listed in section 20 of the Investment Canada Act:

  • the level and nature of economic activity in Canada;
  • the degree and significance of participation by Canadians;
  • productivity, efficiency, technological development, product inno­vation and variety;
  • competition in Canada;
  • compatibility with national industrial, economic and cultural poli­cies; and
  • Canada’s ability to compete in world markets.

The investor’s plans for the target, articulated in the investor’s appli­cation for review, are the key source of information upon which the Minister assesses whether the investment is likely to be of ‘net benefit’ to Canada. On its website, the IRD has listed suggested subjects that investors are encouraged to elaborate on, where relevant, to assist staff in the assessment of the application for review (see question 9).

SOE investors

For investments by SOE investors, the Canadian government has artic­ulated specific factors that the relevant minister will examine as part of his or her assessment of ‘net benefit’ factors listed above (see question 5 for SOE guidelines).

Transactions that could be ‘injurious to national security’

The law does not set out what the scope of the term ‘national security’ is. This has created uncertainty for foreign investors. Until relatively recently, publicly available information regarding the Canadian government’s approach to national security reviews has been scant. With the release of its Guidelines on the National Security Review of Investments in late 2016, the Canadian government shed some light on circum­stances that may draw investors and parties involved in the investment into the realm of a national security review (see question 8). In addition to these guidelines, the Canadian government’s recent rejections, based on national security grounds, provide some indication of the type of business that the government considers within the purview of national security.

For example, consider Beida Jade Bird’s proposal to build a new fire alarm systems factory and Accelero Capital Holdings’s attempted acquisition of Allstream (see question 23). According to media reports, Beida Jade Bird’s proposal to build a new fire alarm systems factory in Quebec was blocked because of the site’s proximity to Canadian Space Agency facilities located under two kilometres away.

In announcing that Accelero Capital Holding’s acquisition would not proceed, the Minister referenced MTS Allstream’s national fibre optic network, which provided critical telecommunications services to businesses and governments. On the other hand, in 2017, the Canadian government’s decision to allow the sale of sensitive technology businesses may also provide some insight into what the government considers as raising significant national security concerns. In an unusual move, the Liberal government consented to setting aside an order (made by the previous Conservative government), which required O-Net Communications to divest its investment in ITF Technologies. In 2017, under a fresh national security review, the investment was allowed to proceed sub­ject to conditions that have not been made public (see question 23). Also, in 2017, the Canadian government was criticised when it decided not to subject Hytera Communications Co Ltd’s (a private Chinese communications company) acquisition of Norsat International Inc (a Canadian satellite company) to a formal national security review following the preliminary 45-day period. Critics from Canada (including two former directors of the Canadian Security Intelligence Service) and the United States said that the transaction should have received greater national security scrutiny, although in fairness to the officials and the Canadian government, the degree of depth of review in the preliminary phase is not known.

In 2018, after conducting a full-scale national security review, the Canadian government blocked CCCC International Holding Limited’s (a Chinese SOE) proposed acquisition of Aecon Group Ltd (a Canadian construction company) because of concerns that the investor could control critical infrastructure projects.

To what extent will the authorities consult or cooperate with officials in other countries during the substantive assessment?

The Canadian government will generally not consult with any foreign government in the context of a ‘net benefit’ review. However, with respect to a national security review, it is possible, if not probable, that the Canadian government would interact with the international intel­ligence and security community.

Other relevant parties

What other parties may become involved in the review process? What rights and standing do complainants have?

As discussed in question 7, the type of information that the relevant minister (Minister of Innovation, Science and Industry or Minister of Canadian Heritage for cultural transactions) shall take into account in satisfying him or herself that the investment is likely to be of ‘net benefit’ is limited to information submitted by the inves­tor, information submitted by the entity from which control of the Canadian business is being acquired and representations by a province of Canada that is likely to be significantly affected by the investment.

Prohibition and objections to transaction

What powers do the authorities have to prohibit or otherwise interfere with a transaction?

Although very few transactions have been rejected since the Investment Canada Act was created in 1985, there has been increased enforcement of the Act in recent years with some notable rejections of major transactions - see question 23.

The relevant minister (Minister of Innovation, Science and Industry or Minister of Canadian Heritage for cultural transac­tions) can seek a court order, which may require the investor to divest control of the Canadian business, dispose of any voting interests or assets acquired by the investor or pay a penalty of up to C$10,000 for each day that the investor is in contravention of the Investment Canada Act, or all of these:

  • if an investor has failed to give notice of an investment or file an application for review;
  • if a reviewable transaction is implemented before clearance is obtained;
  • if a transaction is implemented on terms and conditions that mate­rially vary from those contained in the application for review or any information provided in relation to the investment;
  • if an investor has failed to comply with a written undertaking; or
  • if an investor has entered into any transaction or arrangement pri­marily to avoid the application of the Investment Canada Act.

Is it possible to remedy or avoid the authorities’ objections to a transaction, for example, by giving undertakings or agreeing to other mitigation arrangements?

As discussed in question 9, during the review period of an applica­tion for review, the investor will commonly be asked to submit written undertakings in support of its application (eg, commitments relating to employment levels and location of important offices and facilities).

A written undertaking is a promise made by the investor to the relevant minister (Minister of Innovation, Science and Industry or Minister of Canadian Heritage for cultural transac­tions). As discussed above, the Minister will only approve the acquisi­tion of control of a Canadian business if he or she is satisfied that the transaction is likely to be of ‘net benefit’ to Canada. Generally, the Minister will insist on written undertakings to support a positive ‘net benefit’ finding. The larger, or more sensitive, a transaction is, the more likely it is that undertakings will be required. Once finalised, these undertakings are legally enforceable by the government.

The content and scope of the undertakings are typically based on the business plans contained in the application for review (see question 9). Although each transaction is different, undertakings often focus on Canadian employment levels, Canadian participation in management, Canadian capital expenditure levels, Canadian R&D commitments and the use of Canadian suppliers and businesses.

Undertakings typically last for three years, although they can run longer. During that period, the government can ask for status reports; this is usually done at the 18-month mark. Where market conditions change such that the investor cannot reasonably be expected to abide by the undertakings, the government will sometimes negotiate amend­ments, although there is no legal requirement for the government to do so.

To the extent that the foreign investor expects undertakings will be required in support of a proposed transaction, this eventuality should be managed early on in the process.

In the context of a national security review, measures to mitigate potential harm to national security may also be imposed through conditions in a section 25.4 Order on the investment. Examples of potential mitigating measures include:

  • requiring government approval of proposed business locations in order to avoid proximity to strategic assets;
  • requiring that all servicing and support for some or all business lines is conducted in Canada;
  • creating approved corporate security protocols to safeguard information and access to a site;
  • requiring engagement of a security-cleared compliance officer to ensure and report on compliance;
  • requiring access to facilities for compliance inspection;
  • requiring employees with access to sensitive information to attest to compliance with approved security protocols;
  • notifying existing customers of pending new ownership;
  • providing notice to the Minister of new prospective employees who would have access to sensitive information or technology as a part of their job description; and
  • excluding sensitive business segments or assets from a transaction.
Challenge and appeal

Can a negative decision be challenged or appealed?

There is no right of appeal where the relevant minister (Minister of Innovation, Science and Industry or Minister of Canadian Heritage for cultural transactions) decides that an invest­ment is not likely to be of ‘net benefit’ to Canada and does not approve the investment.

In 2015, for the first time, the national security review process was challenged when the investor applied for judicial review of the Canadian government’s order for the investor to divest it investment on the basis that the investment would be injurious to national security (see question 23).

Confidential information

What safeguards are in place to protect confidential information from being disseminated and what are the consequences if confidentiality is breached?

Section 36 of the Investment Canada Act provides that information obtained by the relevant minister is privileged and no one shall know­ingly communicate or allow to be communicated any such information. Anyone (including government officials) who contravenes section 36 of the Act is guilty of a criminal offence punishable on summary convic­tion. These confidentiality protections are subject to certain exceptions, including information contained in any written undertaking given to the government (even though the undertaking may contain sensitive information). Despite the government’s right to disclose certain infor­mation, it has been the government’s policy not to exercise the right of disclosure without investor consent. It is therefore common for the investor and the government to negotiate and agree on what informa­tion can be made public. The Minister has a desire to communicate to the public the outcome of a review and the basis for his or her conclu­sions, whereas the investor typically has an interest in keeping most of the information confidential. Usually the officials and the Minister are amenable to striking a compromise that balances the interests of both sides. It is not unusual for the scope and content of press releases and speaking notes to be discussed and reviewed in advance.

Recent cases

Relevant recent case law

Discuss in detail up to three recent cases that reflect how the foregoing laws and policies were applied and the outcome, including, where possible, examples of rejections.

Rejections of investments and enforcement activity are relatively rare, but appear to be escalating. The government of Canada has shown that it will avail itself of the powers it has under the Investment Canada Act to reject foreign investments based on national security concerns. Since the national security review process was introduced in March 2009, which provides the government with formal powers to prohibit or unwind foreign investments on the basis of national security concerns, formal national security reviews have been ordered at least 15 times (see question 8). These cases highlight the importance of early iden­tification and careful management of sensitive issues. Now more than ever, before bringing a deal that raises such sensitivity to the Minister for approval, it is critical for investors and their advisers to carefully evaluate whether there is a sufficient basis for the Minister to reach a positive conclusion.

Rejections

In recent years, the Minister has disapproved only a handful of transac­tions, although there have been rumours that other transactions were abandoned when it became clear that Investment Canada Act approval would not be obtained.

In May 2008, the Minister decided that the more than C$1 billion sale of Macdonald, Dettwiler and Associates Ltd to US-based Alliant Techsystems Inc was not likely to be of ‘net benefit’ to Canada. This transaction was likely blocked because of reasons relating to national sovereignty and security. Although no formal reasons were given, many believe that the government was concerned about the loss of Canadian control over satellite technology (developed with govern­mental financial support) that could be used for surveillance of Canada’s northern territories.

In November 2010, BHP Billiton withdrew its unsolicited take-over bid for the Potash Corporation of Saskatchewan after the Minister delivered a rejection of the bid at the end of the review period, despite BHP Billiton’s undertakings that were, in the words of BHP Billiton, ‘unparalleled in substance, scope and duration’.

In October 2013, the Minister blocked the proposed C$520 million acquisition of the Allstream division of Manitoba Telecom Services Inc (Allstream) by Accelero Capital Holdings (Accelero) on national secu­rity grounds. This is the first known rejection of a transaction under the Act’s national security review regime, which was introduced in 2009. The Minister provided the following singular statement as the reason for the rejection: ‘MTS Allstream operates a national fiber optic network that provided critical telecommunications services to businesses and governments, including the Government of Canada’.

In 2015, according to Canadian media reports, a Chinese SOE’s investment to establish a new Canadian business was blocked on national security grounds. Beida Jade Bird’s proposal to build a new fire alarm systems factory in Quebec was blocked based on national secu­rity grounds because of the site’s proximity to Canadian Space Agency facilities located under two kilometres away. Beida Jade Bird planned on building fire-alarm systems for the Chinese market. Interestingly, the Quebec government had given Beida Jade Bird C$3 million in loans and a C$1 million grant in respect of its project. At the time, the Quebec government indicated that it was continuing to assist Beida Jade Bird, saying that the company plans to locate its factory elsewhere, likely still in Quebec.

In 2015, O-Net Communications was ordered to divest its invest­ment in ITF Technologies. O-Net challenged the order and, in an unu­sual move, the government consented to setting aside the order. Under a fresh national security review, the investment was allowed to proceed subject to conditions that have not been made public. See below for further detail.

In 2018, after conducting a full-scale national security review, the Canadian government blocked CCCC International Holding Limited’s (a Chinese SOE) proposed acquisition of Aecon Group Ltd (a Canadian construction company) because of concerns that the investor could control critical infrastructure projects.

Challenges

For the first time, the Investment Canada Act’s national security review process was challenged in 2015. According to materials filed before the Federal Court of Canada in 2015, O-Net Communications applied for judicial review of the Canadian government’s (Governor in Council’s) order to divest its investment in ITF Technologies (a spe­cialty fibre components and modules provider in Quebec) on the basis that the investment would be injurious to national security. O-Net is a high technology company (optical networking, automation and touch panel) listed on the Hong Kong Stock Exchange. In its application, O-Net argued that it was not provided with the basis of the decision nor was it provided with an opportunity to respond. O-Net also argued that its investment is not a threat to national security.

However, refer­ences to military applications on ITF Technologies’ website at that time may provide some insight into the possible cause for the government’s national security concern: ‘ITF specialises in high-level solutions for specialised photonic applications such as underwater transmission, military manufacturing and manufacturing systems.’ In an unusual move, the new Liberal government consented to setting aside the order, which was made under the previous Conservative government. Under a fresh national security review of the transaction in 2017, the Liberal government allowed the transaction to proceed subject to con­ditions that were not made public.

Enforcement activity

In July 2009, in its first enforcement action, the Canadian government sued US Steel for breaching its undertakings to maintain minimum levels of employment in connection with the Stelco Inc acquisition. In 2007, US Steel acquired Stelco Inc. The acquisition was subject to review and approval under the Investment Canada Act. As part of the approval process, US Steel made undertakings (including produc­tion and employment commitments) to the Canadian government to demonstrate that the acquisition was likely to be of net benefit to Canada. In March 2009, US Steel shut down two Canadian plants, cit­ing market conditions as forcing the closures and layoffs.

In July 2009, the Canadian government, not satisfied that US Steel was honouring its commitments, sought a court order requiring US Steel to comply with its undertakings on production and employment. This repre­sented the first time that the Canadian government has sought a court order to enforce undertakings under the Investment Canada Act. Up until December 2011, US Steel and the Canadian government were involved in legal proceedings in connection with the government’s 2009 application. In December 2011, the then Minister of Industry, Christian Paradis, announced that ‘US Steel has given significant new and enhanced undertakings under the Investment Canada Act that provide the basis for the government to settle its lawsuit against US Steel.’ Paradis accepted US Steel’s new commitments (many of which ran to 2015) and requested that the Attorney General of Canada discontinue the court action against US Steel.

There has been a slow escalation of the rigour of enforcement of the Investment Canada Act by the Minister of Innovation, Science and Industry over the past years, as evidenced by the increase in the length of reviews and the scale and scope of written undertakings that foreign investors are required to give the Minister to secure approval.

Updates & Trends

Key developments of the past year

Are there any developments, emerging trends or hot topics in foreign investment review regulation in your jurisdiction? Are there any current proposed changes in the law or policy that will have an impact on foreign investment and national interest review?

Key developments of the past year24 Are there any developments, emerging trends or hot topics in foreign investment review regulation in your jurisdiction? Are there any current proposed changes in the law or policy that will have an impact on foreign investment and national interest review?Fewer investments require ‘net benefit’ approval

In June 2017, the threshold that is applicable to many direct acquisitions of control of Canadian businesses by foreign, non-state owned investors from WTO member states was increased to C$1 billion in enterprise value (two years ahead of schedule). In addition, in September 2017, as a result of the Canada-European Union Comprehensive Economic and Trade Agreement Implementation Act, a new review threshold came into place that entails C$1.5 billion enterprise value for direct acquisitions of control of Canadian businesses by non-state-owned investors from EU member states, the United States, Mexico, South Korea, Chile, Peru, Colombia, Honduras and Panama. This higher threshold now also applies to countries that have ratified the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). As reported in the most recent Investment Canada Act Annual Report, there has been a significant decrease in the number of transactions subject to a net benefit review (falling from 22 in 2016-2017 fiscal year, to nine in 2017-2018 fiscal year) which is attributable in part to the significant increase in the review threshold.

Increased transparency with respect to national security reviews

Since being established in 2009, Canada’s national security review process has been somewhat of a ‘black box’ in terms of transparency, with investors left in the dark as to the government’s concerns with their particular investment through much of the process, and with prospective investors left in the dark as to the nature of the reviews that had historically taken place. As a practical matter, it is our experience that foreign investors will receive limited transparency during the national security review process.

The degree of transparency improved somewhat with the recent release of the government’s 2017-2018 Annual Report, which for the first time contains details of investments that have been subject to review since 2012. Investments are segmented by industry, nationality of the investor, and outcome. The report shows that very few investments are subject to a national security review - in 2017-2018, only four (0.5 per cent) of the 751 investments for which notifications or applications were submitted received notices for review. The report also indicates that since 2012, 15 investments have been reviewed, four of which were blocked, five had divestitures, four had conditions imposed and two were withdrawn. Of these 15, the investments derived from a combination of China, Russia, Egypt and the United Kingdom, and from the industries ranging from pharmaceuticals and computing to manufacturing and mining.

The yet-to-be released 2018-2019 Annual Report is expected to show that not all investments subject to a national security review will be impacted, as some were allowed to be completed without governmental intervention.