By way of update to our August 2016 MarketCaps, on November 1, 2016, the Canadian government announced two important developments related to the Investment Canada Act in its Fall Economic Statement. Both are intended to facilitate increased foreign investment in Canada.
Before the end of 2016, the government will publish guidelines under which investments will be examined under the national security provisions. While the government’s announcement does not provide details as to the likely contents of the guidelines, the goal seems to be to strike a balance between providing increased transparency to help foreign investors better understand and navigate the review process, while ensuring that the integrity of the national security process is maintained. We will provide a subsequent update on the guidelines shortly after they become public.
As explained in our August 2016 MarketCaps, almost immediately after the national security review powers were enacted, stakeholders began to press the government for guidance as to when they might come into play. Earlier this year, the government published some high level information on the use of the powers, including the number of national security reviews that have been conducted and the outcome of those reviews. With its November 1, 2016 announcement, the government is going a step further. This will almost certainly be welcomed by most stakeholders as a step in the right direction, with the size of that step to be assessed based on the contents of the guidelines once they become public.
Accelerated increase of key financial review threshold
The most commonly applicable financial threshold above which pre-closing review and approval is required, which is currently C$600 million of enterprise value, will be increased to $1 billion in 2017, two years earlier than originally planned by the former government. This threshold applies to the direct acquisition of control of a non-cultural Canadian business by a foreign investor that is ultimately controlled by residents of a World Trade Organization member and is not a state owned enterprise. For more information about how the threshold is calculated, other thresholds that may apply, and the review process generally, please click here to view our Guide to Doing Business in Canada: Regulation of Foreign investment.
Although not part of the government’s November 1, 2016 announcement, it is worth noting that if CETA comes into force, which while still not a certainty appears more likely now than only a short while ago, the threshold will increase to C$1.5 billion for investors that are ultimately controlled by residents of EU members. In the government’s 2015-2016 fiscal year, 21.22% of foreign investment in Canada by total number of investments originated from the EU. While this is significant in its own right, even more significant is that Canada’s other free trade agreements have most favoured nation provisions that will afford the CETA review threshold to the counterparties to these other free trade agreements. The vast majority of foreign investment in Canada originates in countries with which Canada has a free trade agreement.