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Registration

SOR/2015-64 March 13, 2015

INVESTMENT CANADA ACT

Regulations Amending the Investment Canada Regulations

P.C. 2015-310 March 12, 2015

His Excellency the Governor General in Council, on the recommendation of the Minister of Industry and the Minister of Canadian Heritage, pursuant to sections 14.2 (see footnote a) and 35 (see footnote b) of the Investment Canada Act (see footnote c), makes the annexed Regulations Amending the Investment Canada Regulations.

REGULATIONS AMENDING THE INVESTMENT CANADA REGULATIONS

AMENDMENTS

1. (1) The definitions “controlled by a WTO investor” and “WTO investor” in section 2 of the Investment Canada Regulations (see footnote 1) are repealed.

(2) Section 2 of the Regulations is amended by adding the following in alphabetical order:

“authorized body” means the board of directors of an entity, a committee of the board of directors, a person or group of persons that performs the functions of a board of directors or a director or officer of the entity who is authorized to make the fair market value determinations referred to in sections 3.3 to 3.5; (organe autorisé)

“class” means any class of securities and includes a series of a class; (catégorie)

“equity security” means a security of an entity that carries a right to vote in all or certain circumstances, a residual right to participate in the earnings of the entity or a right to receive the remaining property of the entity on its dissolution or liquidation, but does not include

  • (a) a right, warrant or option to acquire such a security or a privilege to convert to such a security; or
  • (b) a bond, debenture, note or similar instrument representing indebtedness, whether secured or unsecured; (titre de participation)

“fair market value” means the monetary consideration that, in an open and unrestricted market, a reasonably prudent and informed buyer would pay to a reasonably prudent and informed seller, when acting at arm’s length from one another; (juste valeur marchande)

“principal market”, in relation to a class of equity securities, means the published market on which the greatest volume of trading in those securities occurred during the trading period; (marché principal)

“publicly traded entity” means an entity whose equity securities are listed on a published market; (unité ouverte)

“published market”, in relation to a class of equity securities, means a market inside or outside Canada on which the securities are traded, if the prices at which the securities are traded are regularly published either electronically or in a newspaper or financial or business publication of general circulation; (marché publié)

“trading period”, in relation to a class of equity securities of an entity, means

  • (a) the most recent 20 days of trading before the first day of the month that immediately precedes the month in which the complete notice of investment or complete application for review of an investment is filed, in cases where the notice or application is filed before the implementation of the investment, or
  • (b) the most recent 20 days of trading before the first day of the month that immediately precedes the month in which the investment was implemented, in all other cases; (période d’opération)

2. Section 2.2 of the Regulations is repealed.

3. The heading before section 3.1 of the Regulations is replaced by the following:

ACQUISITIONS SUBJECT TO SECTION 14 AND SUBSECTION 14.1(1.1) OF THE ACT

4. (1) Subsections 3.1(1) to (3) of the Regulations are replaced by the following:

3.1 (1) In this section, “non-Canadian” refers to

  • (a) a non-Canadian, other than a WTO investor, if the Canadian business that is the subject of the investment is controlled by an investor, other than a WTO investor, immediately prior to the implementation of the investment;
  • (b) a non-Canadian if the Canadian business that is the subject of the investment is a cultural business as defined in subsection 14.1(6) of the Act; or
  • (c) a state-owned enterprise.

(1.1) For the purposes of section 14 and subsection 14.1(1.1) of the Act, if a non-Canadian acquires control of a Canadian business by acquiring only the assets that are used in carrying on the Canadian business or by acquiring only control of an entity that is carrying on the Canadian business, the value of the assets is the value of the aggregate of all assets acquired, or of all assets of the entity, as shown in the audited financial statements of the entity carrying on the business for its fiscal year immediately preceding the implementation of the investment.

(2) For the purposes of section 14 and subsection 14.1(1.1) of the Act, if a non-Canadian acquires control of a Canadian business by acquiring control of an entity carrying on the Canadian business and also, directly or indirectly, acquires control of one or more other entities in Canada, the value of the assets is the value of the aggregate of all assets shown in the audited financial statements consolidated for all the entities for their fiscal year immediately preceding the implementation of the investment.

(3) For the purposes of section 14 and subsection 14.1(1.1) of the Act, if a non-Canadian acquires control of a Canadian business by acquiring control, directly or indirectly, of a corporation incorporated outside Canada that controls, directly or indirectly, an entity in Canada that is carrying on a Canadian business, the value of the assets of all entities, both inside and outside Canada, whose control is acquired, directly or indirectly, is the value of the aggregate of all assets shown in the audited financial statements consolidated for all the entities for their fiscal year immediately preceding the implementation of the investment.

(2) The portion of subsection 3.1(4) of the Regulations before paragraph (a) is replaced by the following:

(4) If the consolidated financial statements of the entities referred to in subsection (2) or (3) are not available, the value of the assets for the purposes of section 14 and subsection 14.1(1.1) of the Act is the value of the aggregate of the assets of all the entities as shown in the audited financial statements of each entity for its fiscal year immediately preceding the implementation of the investment, excluding

(3) Section 3.1 of the Regulations is amended by adding the following after subsection (7):

(8) Any conversion into Canadian dollars that is required to calculate the value of the assets under this section shall be based on the noon exchange rate quoted by the Bank of Canada on the last day of the period covered by the financial statements referred to in this section.

5. The Regulations are amended by adding the following after section 3.1:

ACQUISITIONS SUBJECT TO SUBSECTION 14.1(1) OF THE ACT

3.2 In sections 3.3 to 3.5, “non-Canadian” refers to

  • (a) a WTO investor that is not a state-owned enterprise; or
  • (b) a non-Canadian, other than a WTO investor, that is not a state-owned enterprise if the Canadian business that is the subject of the investment is controlled by a WTO investor immediately prior to the implementation of the investment.
PUBLICLY TRADED ENTITIES

3.3 (1) For the purposes of subsection 14.1(1) of the Act, if control of a publicly traded entity that is directly or indirectly carrying on a Canadian business is acquired by a non-Canadian in the manner described in paragraph 28(1)(a) or (b) or subparagraph 28(1)(d)(i) of the Act, the enterprise value of the assets of the Canadian business is equal to the market capitalization of the entity, plus its liabilities, minus its cash and cash equivalents.

(2) For the purposes of subsection (1),

  • (a) an entity’s market capitalization is equal to the total of
    • (i) for each class of its equity securities that are listed on one or more published markets, the average daily number of its equity securities of that class that are outstanding during the trading period multiplied by the average daily closing price of its equity securities of that class on the principal market during the trading period, and
    • (ii) for each class of its equity securities that are not listed on a published market, the amount that the authorized body of the non-Canadian determines in good faith and represents to be the fair market value of the outstanding securities of that class;
  • (b) an entity’s liabilities are equal to the total liabilities, other than operating liabilities, that are listed in its most recent quarterly financial statements released
    • (i) before the filing of the notice of investment or application for review of an investment, in cases where the notice or application is filed before the implementation of the investment, or
    • (ii) before the implementation of the investment, in all other cases; and
  • (c) an entity’s cash and cash equivalents are equal to the total cash and cash equivalents that are listed in its most recent quarterly financial statements released
    • (i) before the filing of the notice of investment or application for review of an investment, in cases where the notice or application is filed before the implementation of the investment, or
    • (ii) before the implementation of the investment, in all other cases.

(3) If the non-Canadian does not know the number of equity securities in a class that are outstanding during the trading period, the most recently published information concerning the number of outstanding equity securities shall be used.

(4) The enterprise value of the assets of the Canadian business as well as the entity’s market capitalization, liabilities and cash and cash equivalents shall be expressed in Canadian dollars.

(5) Any conversion into Canadian dollars that is required to calculate the enterprise value of the assets under this section shall

  • (a) in determining the market capitalization of the entity, be based on the average of the noon exchange rates quoted by the Bank of Canada during the trading period; and
  • (b) in determining the liabilities and cash and cash equivalents of the entity, be based on the noon exchange rate quoted by the Bank of Canada on the last day of the period covered by the financial statements referred to in paragraphs (2)(b) and (c),
ENTITIES THAT ARE NOT PUBLICLY TRADED

3.4 (1) For the purposes of subsection 14.1(1) of the Act, if control of an entity that is not publicly traded and that is directly or indirectly carrying on a Canadian business is acquired by a non-Canadian in the manner described in paragraph 28(1)(a) or (b) or subparagraph 28(1)(d)(i) of the Act, the enterprise value of the assets of the Canadian business is equal to the total acquisition value of the entity, plus its liabilities, minus its cash and cash equivalents.

(2) For the purposes of subsection (1),

  • (a) if the non-Canadian is acquiring 100% of the voting interests in the entity, the entity’s total acquisition value is equal to the total amount of the consideration payable for the acquisition of the Canadian business, as determined in accordance with the transaction documents that are used to implement the investment; and
  • (b) if the non-Canadian is acquiring less than 100% of the voting interests in the entity, the entity’s total acquisition value is equal to the total of
    • (i) the amount of the consideration payable by the non- Canadian investor, as determined in accordance with the transaction documents that are used to implement the investment,
    • (ii) the amount of the consideration payable by any investors other than the non-Canadian, as determined in accordance with the transaction documents that are used to implement the investment, and
    • (iii) the amount that the authorized body of the non-Canadian determines in good faith and represents to be the fair market value of any portion of the voting interests in the entity that is not being acquired by the investors referred to in subparagraphs (i) and (ii).

(3) If the total consideration payable is not quantified at the time that the investment is implemented, the entity’s total acquisition value is equal to the total of

  • (a) the amount, if any, calculated in accordance with subsection (2); and
  • (b) the amount that the authorized body of the non-Canadian determines in good faith and represents to be the fair market value of the portion of the total consideration that has not been quantified.

(4) Despite subsections (2) and (3), if the parties to the investment are not acting at arm’s length or if no or only nominal consideration is payable for the acquisition of the Canadian business, the total consideration payable is the amount that the authorized body of the non-Canadian determines in good faith and represents to be the fair market value of the Canadian business.

(5) For the purposes of subsection (1), an entity’s liabilities are equal to the total liabilities, other than operating liabilities, that are listed in its most recent quarterly financial statements released

  • (a) before the filing of the notice of investment or application for review of an investment, in cases where the notice or application is filed before the implementation of the investment; or
  • (b) before the implementation of the investment, in all other cases.

(6) For the purposes of subsection (1), an entity’s cash and cash equivalents are equal to the total cash and cash equivalents that are listed in its most recent quarterly financial statements released

  • (a) before the filing of the notice of investment or application for review of an investment, in cases where the notice or application is filed before the implementation of the investment; or
  • (b) before the implementation of the investment, in all other cases.

(7) The enterprise value of the assets of the Canadian business as well as the entity’s total acquisition value, liabilities and cash and cash equivalents shall be expressed in Canadian dollars.

(8) Any conversion into Canadian dollars that is required to calculate the enterprise value of the assets under this section shall

  • (a) in determining the total acquisition value of the entity, be based on the average of the noon exchange rates quoted by the Bank of Canada over the month that immediately precedes the month in which
    • (i) the complete notice of investment or complete application for review of an investment is filed, in cases where the notice or application is filed before the implementation of the investment, or
    • (ii) the investment is implemented, in cases where the notice or application has not been filed; and
  • (b) in determining the liabilities and cash and cash equivalents of the entity, be based on the noon exchange rate quoted by the Bank of Canada on the last day of the period covered by the financial statements referred to in subsections (5) and (6).
CANADIAN BUSINESSES ACQUIRED BY ACQUISITION OF ASSETS

3.5 (1) For the purposes of subsection 14.1(1) of the Act, if control of a Canadian business is acquired by a non-Canadian in the manner described in paragraph 28(1)(c) of the Act, the enterprise value of the assets of the Canadian business is equal to the total acquisition value, plus its liabilities, minus its cash and cash equivalents.

(2) For the purposes of subsection (1),

  • (a) the total acquisition value is the total amount of the consideration payable for the acquisition of the Canadian business, as determined in accordance with the transaction documents that are used to implement the investment;
  • (b) the liabilities are equal to the total liabilities, other than operating liabilities, that are assumed by the non-Canadian, as determined in accordance with the transaction documents that are used to implement the investment; and
  • (c) the cash and cash equivalents are equal to the total cash and cash equivalents that are transferred to the non-Canadian, as determined in accordance with the transaction documents that are used to implement the investment.

(3) Despite subsection (2), if the parties to the investment are not acting at arm’s length or if no or only nominal consideration is payable for the acquisition of the Canadian business, the total consideration payable is the amount that the authorized body of the non-Canadian determines in good faith and represents to be the fair market value of the Canadian business.

(4) The enterprise value of the assets of the Canadian business as well as the total acquisition value, liabilities and cash and cash equivalents shall be expressed in Canadian dollars.

(5) Any conversion into Canadian dollars that is required to calculate the enterprise value of the assets under this section shall be based on the average of the noon exchange rates quoted by the Bank of Canada over the month that immediately precedes the month in which

  • (a) the complete notice of investment or complete application for review of an investment is filed, in cases where the notice or application is filed before the implementation of the investment; or
  • (b) the investment is implemented, in cases where the notice or application has not been filed.
ACQUISITIONS EXEMPTED FROM REVIEW BY SUBSECTION 14.1(4) OF THE ACT

3.6 (1) In this section, “non-Canadian” refers to

  • (a) a WTO investor; or
  • (b) a non-Canadian, other than a WTO investor, if the Canadian business that is the subject of the investment is controlled by a WTO investor immediately prior to the implementation of the investment.

However, it does not refer to a non-Canadian if the Canadian business that is the subject of the investment is a cultural business

(2) For the purpose of section 12 of the Act, if the acquisition of a Canadian business by a non-Canadian is exempted from review by subsection 14.1(4) of the Act, the value of the assets of the Canadian business is their value calculated in accordance with section 3.1.

6. Sections 4 to 6 of the Regulations are replaced by the following:

4. (1) When a notice or application is required by section 12 or 17 of the Act, it shall be signed by

  • (a) the investor, if the investor is an individual;
  • (b) a director or officer of the investor, if the investor is a corporation; or
  • (c) an individual who exercises the powers of a director or officer, if the investor is an entity other than a corporation.

(2) The person who signs the notice or application shall represent that the information it contains is complete and correct to the best of their knowledge and belief.

NOTICE OF INVESTMENT

5. A notice required to be given by an investor under section 12 of the Act shall be in writing, contain the information prescribed in Schedule I and be sent to the Director.

APPLICATION FOR REVIEW

6. An application required to be filed by an investor under subsection 17(1) of the Act shall be in writing, be sent to the Director and contain

  • (a) the information prescribed in Schedule II, if the application relates to an investment that is reviewable under section 14 of the Act; or
  • (b) the information prescribed in Schedule III, if the application relates to an investment that is reviewable under section 15 of the Act.

7. Schedules I and II to the Regulations are replaced by the Schedules I and II set out in the schedule to these Regulations.

8. Item 1 of the Schedule III to the Regulations is replaced by the following:

1. Legal name of the investor.

COMING INTO FORCE

9. These Regulations come into force on the day on which section 137 of the Economic Action Plan 2013 Act, No. 1, chapter 33 of the Statutes of Canada, 2013, comes into force, but if they are registered after that day, they come into force on the day on which they are registered.

SCHEDULE
(Section 7)

SCHEDULE I
(Section 5)

Investor

1. Legal name of the investor.

2. Legal names of the members of the investor’s board of directors, the investor’s five highest-paid officers and any person or entity that owns 10% or more of the investor’s equity or voting interests.

3. Business address of the investor — other than the address of the investor’s legal counsel — and business address of any person or entity mentioned in item 2, as well as the local mailing address of any person mentioned in that item, excluding in each case any address that is a post office box.

4. Telephone number, fax number and email address of the investor and of any person or entity mentioned in item 2 and, in the case of an individual, their date of birth.

5. An indication of whether the investor is a WTO investor or a NAFTA investor.

6. Legal name and address of the investor’s ultimate controller, if any, and the manner in which control is exercised.

7. Description of the business activities carried on by the investor and by its ultimate controller, if any.

8. Country of origin of the investor’s ultimate controller, if any.

9. An indication of whether a foreign state has a direct or indirect ownership interest in the investor and, if so, the name of the state and the nature and extent of its interest in the investor.

10. An indication of whether the investor, a subsidiary of the investor, a member of the investor’s board of directors, the investor’s five highest-paid officers or a person or entity that owns 10% or more of the investor’s equity or voting interests owns any equity or voting interests in the Canadian business at the time of filing.

11. An indication of whether a foreign state owns a third or more of the investor’s voting interests and no other party has a controlling interest.

12. An indication of whether a foreign state owns a minority of the investor’s voting interests.

13. If a foreign state has an ownership interest or voting interests in the investor, an indication of whether a special veto or other decision-making right is attached to that interest.

14. An indication of whether a foreign state has the power to appoint members to the investor’s board of directors and, if so, the number of members the state has appointed and the total number they may appoint.

15. An indication of whether a foreign state has the power to appoint the investor’s Chief Executive Officer or other senior management officers.

16. An indication of whether a foreign state has authority under the law or instruments governing the investor to direct its strategic or operational decision-making.

Investment

17. Legal name of the vendor and legal name of the vendor’s ultimate controller, if any.

18. An indication of whether the investment is an acquisition of control of a Canadian business or the establishment of a new Canadian business.

19. Copy of the purchase and sale agreement or, if not available, a description of the principal terms and conditions, including the estimated total purchase price for the Canadian business and, if applicable, the estimated purchase price for all entities acquired.

20. Sources of funding for the investment.

21. Date of implementation of the investment.

Canadian business

22. Legal name of the Canadian business.

23. Business address of the Canadian business.

24. Brief description of the business activities that are or will be carried on by the Canadian business, including a description of the products that are or will be manufactured, sold or exported by the Canadian business, the services that are or will be provided and the codes that are assigned to the products and services by the North American Industry Classification System (NAICS) Canada, 2012, published by authority of the Minister responsible for Statistics Canada, as amended from time to time.

Acquisition of control of Canadian business

25. In the case of an acquisition of control of a Canadian business, the number of persons employed in connection with the Canadian business.

26. If the investor is not a WTO investor or a NAFTA investor, an indication of whether immediately before the implementation of the investment the Canadian business was controlled by a WTO investor or a NAFTA investor.

27. If the investor is a WTO investor or a NAFTA investor or if immediately before the implementation of the investment the Canadian business was controlled by a WTO investor or a NAFTA investor, an indication of whether the Canadian business is a cultural business as defined in subsection 14.1(6) of the Act.

28. If the Canadian business is, immediately before the implementation of the investment, controlled outside of Canada, the country of origin of the ultimate controller.

29. In the case of an investment that is referred to in section 11 of the Act to which section 3.1 or 3.6 of these Regulations applies,

  • (a) if only the assets that are used in carrying on a Canadian business are acquired or only control of an entity that carries on a Canadian business is acquired, the value of the aggregate of all assets acquired or of all assets of the entity that carries on the Canadian business, as the case may be, calculated in the manner described in section 3.1 of these Regulations; and
  • (b) if control of an entity that carries on a Canadian business and control of one or more other entities is acquired, directly or indirectly, the value — calculated in the manner described in section 3.1 of these Regulations — of the aggregate of
    • (i) all assets of the entity carrying on the Canadian business and of all other entities in Canada whose control is acquired, directly or indirectly, and
    • (ii) if control of a corporation incorporated outside Canada is acquired, directly or indirectly, all assets of all entities, both inside Canada and outside Canada, whose control is acquired in the same transaction.

30. In the case of an investment referred to in section 11 of the Act to which section 3.3 of these Regulations applies, the market capitalization of the acquired entity, its liabilities and its cash and cash equivalents, calculated in each case in the manner described in that section 3.3.

31. In the case of an investment referred to in section 11 of the Act to which section 3.4 of these Regulations applies, the total acquisition value of the acquired entity, its liabilities and its cash and cash equivalents, calculated in each case in the manner described in that section 3.4.

32. In the case of an investment referred to in section 11 of the Act to which section 3.5 of these Regulations applies, the total acquisition value of the Canadian business acquired, its liabilities and its cash and cash equivalents, calculated in each case in the manner described in that section 3.5.

Establishment of a new Canadian business

33. In the case of the establishment of a new Canadian business,

  • (a) the projected number of persons to be employed in connection with the new Canadian business at the end of the second full year of operation;
  • (b) the projected total amount to be invested in the new Canadian business during the first two full years of operation; and
  • (c) the projected level of sales or revenues of the new Canadian business during the second full year of operation.
Information concerning types of business activities related to cultural heritage or national identity

34. If the investment falls within any type of business activity set out in Schedule IV,

  • (a) the type of business activity;
  • (b) a description of the business activities carried on by the investor;
  • (c) a description of any business activity carried on by the investor’s ultimate controller, if any, that is similar to any type of business activity listed under paragraph (a);
  • (d) a description of any products that are or will be manufactured or sold and of any services that are or will be provided by the Canadian business; and
  • (e) in the case of an acquisition of control of a Canadian business, the vendor’s legal name and the legal name of the vendor’s ultimate controller, if any.

SCHEDULE II
(Paragraph 6(a))

Investor

1. Legal name of the investor.

2. Legal names of the members of the investor’s board of directors, the investor’s five highest-paid officers and any person or entity that owns 10% or more of the investor’s equity or voting interests.

3. Business address of the investor — other than the address of the investor’s legal counsel — and the business address of any person or entity mentioned in item 2, as well as the local mailing address of any person mentioned in that item, excluding in each case any address that is a post office box.

4. Telephone number, fax number and email address of the investor and of any person or entity mentioned in item 2 and, in the case of an individual, their date of birth.

5. An indication of whether the investor is a WTO investor or a NAFTA investor.

6. Legal name and address of the investor’s ultimate controller, if any, and the manner in which control is exercised.

7. Description of the business activities carried on by the investor and by its ultimate controller, if any.

8. Country of origin of the investor’s ultimate controller, if any.

9. An indication of whether a foreign state has a direct or indirect ownership interest in the investor and, if so, the name of the state and the nature and extent of its interest in the investor.

10. An indication of whether the investor, a subsidiary of the investor, a member of the investor’s board of directors, the investor’s five highest-paid officers or a person or entity that owns 10% or more of the investor’s equity or voting interests owns any equity or voting interests in the Canadian business at the time of filing.

11. An indication of whether a foreign state owns a third or more of the investor’s voting interests and no other party has a controlling interest.

12. An indication of whether a foreign state owns a minority of the investor’s voting interests.

13. If a foreign state has an ownership interest or voting interests in the investor, an indication of whether a special veto or other decision-making right is attached to that interest.

14. An indication of whether a foreign state has the power to appoint members to the investor’s board of directors and, if so, the total number of members the state has appointed and the total number they may appoint.

15. An indication of whether a foreign state has the power to appoint the investor’s Chief Executive Officer or other senior management officers.

16. An indication of whether a foreign state has authority under the law or instruments governing the investor to direct its strategic or operational decision-making.

17. Annual reports or, if not available, financial statements of the investor for the three fiscal years immediately preceding the implementation of the investment.

Investment

18. Legal name of the vendor and legal name of the vendor’s ultimate controller, if any.

19. Copy of the purchase and sale agreement or, if not available, a description of the principal terms and conditions, including the estimated total purchase price for the Canadian business and, if applicable, the estimated purchase price for all entities acquired.

20. Sources of funding for the investment.

21. Date of implementation of the investment.

Canadian Business

22. Legal name of the Canadian business.

23. Business address of the Canadian business.

24. Annual reports or, if not available, financial statements of the Canadian business for the three fiscal years immediately preceding the implementation of the investment.

25. Description of the business activities that are carried on by the Canadian business, including

  • (a) the locations in Canada where the business is being carried on;
  • (b) the business activities carried on at each location;
  • (c) the number of employees at each location; and
  • (d) the products that are manufactured, sold or exported by the Canadian business, the services that are provided and the codes that are assigned to the products and services by the North American Industry Classification System (NAICS) Canada, 2012, published by authority of the Minister responsible for Statistics Canada, as amended from time to time.

26. If the investor is not a WTO investor or a NAFTA investor, an indication of whether immediately before the implementation of the investment the Canadian business was controlled by a WTO investor or a NAFTA investor.

27. If the Canadian business is, immediately before the implementation of the investment, controlled outside of Canada, the country of origin of the ultimate controller.

Assets

28. In the case of an investment that is referred to in subsection 14(1) or 14.1(1.1) of the Act to which section 3.1 or 3.6 of these Regulations applies,

  • (a) if only the assets that are used in carrying on a Canadian business are acquired or only control of an entity that carries on a Canadian business is acquired, the value of the aggregate of all assets acquired or of all assets of the entity that carries on the Canadian business, as the case may be, calculated in the manner described in section 3.1 of these Regulations; and
  • (b) if control of an entity that carries on a Canadian business and control of one or more other entities is acquired, directly or indirectly, the value — calculated in the manner described in section 3.1 of these Regulations — of the aggregate of
    • (i) all assets of the entity carrying on the Canadian business and of all other entities in Canada whose control is acquired, directly or indirectly, and
    • (ii) if control of a corporation incorporated outside Canada is acquired, directly or indirectly, all assets of all entities, both inside Canada and outside Canada, whose control is acquired in the same transaction.

29. In the case of an investment referred to in subsection 14.1(1) of the Act to which section 3.3 of these Regulations applies,

  • (a) the market capitalization of the acquired entity, its liabilities and its cash and cash equivalents, calculated in each case in the manner described in that section 3.3; and
  • (b) the most recent quarterly financial statements of the Canadian business on which the enterprise value of the assets of the Canadian business is based.

30. In the case of an investment referred to in subsection 14.1(1) of the Act to which section 3.4 of these Regulations applies,

  • (a) the total acquisition value of the acquired entity, its liabilities and its cash and cash equivalents, calculated in each case in the manner described in that section 3.4; and
  • (b) the most recent quarterly financial statements of the Canadian business on which the enterprise value of the assets of the Canadian business is based.

31. In the case of an investment referred to in subsection 14.1(1) of the Act to which section 3.5 of these Regulations applies, the total acquisition value of the Canadian business acquired, its liabilities and its cash and cash equivalents, calculated in each case in the manner described in that subsection 3.5.

Plans

32. Detailed description of the investor’s plans for the Canadian business with specific reference to

  • (a) the relevant factors set out in section 20 of the Act; and
  • (b) the current operations of the Canadian business.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

Amendments made to the Investment Canada Act (the Act or ICA), passed on June 6, 2013, in the Economic Action Plan 2013 Act, No. 1 (EAP 2013) gradually raise the net benefit review threshold to $1 billion in enterprise value for investments made by World Trade Organization (WTO) private-sector investors. As provided for in EAP 2013, the threshold for state-owned enterprise investors from WTO member countries will not change to enterprise value. In 2015, the WTO threshold is $369 million in asset value of the Canadian business. Regulatory amendments are needed to prescribe how enterprise value is calculated and to collect additional information relevant to national security and net benefit reviews.

Background

The introduction of the net benefit review threshold based on enterprise value responded to the recommendation of the Competition Policy Review Panel (the Panel), which was mandated to review Canada’s competition and investment laws with a view to boosting Canada’s competitiveness. In its final report, Compete to Win, the Panel indicated that Canada should retain an investment review process, but that it should be one of exceptional application. The Panel recommended that the review threshold be raised to $1 billion, and that the standard for determining the value of the Canadian business being acquired should be changed to enterprise value. A higher review threshold would be consistent with narrowing the scope for intervention of the ICA, and therefore making its application more exceptional. In addition, a higher threshold would be aligned with the Panel’s view that Canada benefits from openness to the world and that attracting greater foreign investment is beneficial and in Canada’s economic interest.

Under the current ICA, for purposes of determining whether a proposed investment is subject to a net benefit review, the standard for determining the value of a Canadian business is based on the value of the assets according to the business’ financial statements (book value). A review is required where the book value of the assets of the Canadian business is equal to or above the applicable threshold. The concept of enterprise value, as the Panel states, “better reflects the increasing importance to our modern economy of service and knowledge-based industries in which much of the value of an enterprise is not recorded on its balance sheet because it resides in people, know-how, intellectual property and other intangible assets not recognized in a balance sheet by current accounting methods.”

In March 2009, the Budget Implementation Act, 2009 (BIA 2009) amended the ICA to change the basis of the review threshold for investments made by WTO investors from asset value to enterprise value; and increase the threshold to $1 billion. These legislative amendments applied to investments by WTO investors and non-WTO investors if the Canadian business which is the subject of the investment is immediately prior to the implementation of the investment controlled by a WTO investor (hereinafter referred to as WTO investments).

In December 2012, the Government released a policy statement which clarified its approach to foreign investments by state-owned enterprises. As part of this statement, the Government indicated that in the case of proposed investments in Canada by foreign state-owned enterprises, the existing standard for the review threshold (i.e. book value) would remain in place and would be adjusted annually to reflect the change in nominal gross domestic product (GDP) from the previous year, as required by the Act. EAP 2013 implements the Government’s policy by (1) raising the ICA review threshold, in subsection 14.1(1) of the Act, for WTO investments to $1 billion over four years and changing the basis of the review threshold to enterprise value from book value; and (2) retaining, through new subsection 14.1(1.1), the current book value threshold for WTO investments by foreign state-owned enterprises.

Objectives

In order to implement the EAP 2013 legislative amendments to the ICA, certain amendments to the Regulations are necessary. The Regulations Amending the Investment Canada Regulations establish the methodology for calculating the enterprise value of a Canadian business; remove references to the transportation, financial services and uranium production sectors in response to the 2009 amendments to the Act through the BIA 2009; formalize the process for collecting information relevant to the national security and net benefit review processes; and make other consequential and housekeeping changes.

Description

The EAP 2013 legislative amendments to subsection 14.1(1) of the ICA have the effect of changing the review threshold from book value to enterprise value for proposed WTO investments by investors who are not state-owned enterprises (SOEs), as defined in section 3 of the Act. Once the amendments to subsection 14.1(1) of the Act and to the Regulations come into force (30 days after the date of publication in the Canada Gazette, Part II, of the Order in Council which brings sections 137, 146 to 148 and 150 of the EAP 2013 into force), the review threshold for WTO investments by non-SOE investors is immediately raised to $600 million in enterprise value.

With respect to proposed WTO investments by investors who are SOEs, the EAP 2013 legislative amendments maintain the current book value–based review threshold as set out in subsections 14.1(1.1) and (2).

In general, the Regulations, as amended, define the methodology for determining the enterprise value of a Canadian business which is the subject of a proposed acquisition of control by a non-Canadian for the purposes of determining whether the investment would be subject to a net benefit review; modify Schedules I and II which set out the information that is required to be filed by non-Canadian investors; and specify who is required to sign applications for review and notifications and require the individual who signs the application for review or notification, as the case may be, to represent that the information provided is complete and correct to the best of their knowledge and belief. The amendments also repeal the definitions of “controlled by a WTO investor” and of “WTO Investor” in section 2, as these terms are already defined in the Act; repeal section 2.2, which provides the definition of transportation services; and change sections 5 and 6 to correct outdated references to the President of the Investment Canada Agency. The specific amendments to the Regulations are outlined in more details below.

Amendments to section 2

The first amendment to section 2 repeals the definitions of “controlled by a WTO investor” and of “WTO Investor” from the Regulations. This addresses a housekeeping issue raised by the Standing Joint Committee for the Scrutiny of Regulations, as these terms are already defined in section 14.1 of the Act.

The second amendment to section 2 adds and defines the following new terms: “authorized body,” “class,” “equity security,” “fair market value,” “principal market,” “publicly traded entity,” “published market” and “trading period.” These terms are employed in the methodology to calculate the enterprise value of a WTO investment. If the enterprise value of the Canadian business in question is equal to or greater than the review threshold, the investor is required to file an application for review; otherwise the investor must file a notification.

Repeal of section 2.2

The repeal of section 2.2 removes the definition of “transportation services” from the Regulations. The definition is no longer required as the BIA 2009 removed the lower threshold for WTO investments in transportation services, as well as in the uranium production and financial services sectors.

Amendments to section 3.1 — Acquisitions subject to section 14 and subsection 14.1(1.1) of the Act

Amendments to section 3.1 are primarily required as a consequence of the changes to the Act made in EAP 2013 which amended subsection 14.1(1) and introduced a new subsection 14.1(1.1), as described above. Section 3.1 currently provides the methodology for calculating the value of the assets of a Canadian business. Under the amendments to the Regulations, section 3.1 is modified so that the existing book value method for determining the value of the Canadian business applies to the following types of investments:

  • (1) Non-WTO: a non-WTO investor (either an SOE or a private- sector investor) acquiring control of a Canadian business which is not controlled by a WTO investor immediately prior to the implementation of the investment. The review thresholds for these investments are those set out in subsections 14(3) and (4) of the Act;
  • (2) Cultural businesses: if a non-Canadian is acquiring control of a Canadian business that is a cultural business, the review thresholds are set out in subsections 14(3) and (4) of the Act; and
  • (3) SOEs: for WTO investments by an SOE, the review threshold is the WTO threshold in subsection 14.1(2) of the Act.

In addition, subsection 3.1(8) is added to provide the method for currency conversion to Canadian dollars for investments subject to section 3.1. The language of section 3.1 is also updated to reflect current regulatory drafting practices.

Addition of section 3.2 — Acquisitions subject to subsection 14.1(1) of the Act

New section 3.2 identifies the investors to whom the enterprise value related amendments made to subsection 14.1(1) of the Act in the EAP 2013 apply. Under new section 3.2, the enterprise value review threshold is applicable to private sector WTO investments. When amended subsection 14.1(1) of the Act and the amendments to the Regulations come into force, the enterprise value review threshold will be raised to $600 million for two years, and then increased to $800 million for the following two years, and then moved to $1 billion. The threshold will stay at $1 billion for one year and the remainder of the calendar year in which that year ends. For subsequent calendar years, the threshold will be indexed annually to changes in Canada’s nominal GDP, in accordance with the formula in the Act.

The methodology for calculating the enterprise value of publicly trade entities, entities that are not publicly traded and Canadian businesses acquired through the acquisition of assets is specified in new sections 3.3, 3.4 and 3.5, respectively.

Addition of section 3.3 — Publicly traded entities

New section 3.3 specifies the method for calculating the enterprise value of a Canadian business that is a publicly traded entity. For these investments, the enterprise value of the Canadian business is calculated as its market capitalization, plus its total liabilities excluding its operating liabilities, minus its cash and cash equivalents.

A Canadian business’ market capitalization is calculated by adding together for each class of its equity securities listed on one or more published markets, the average daily number of equity securities that are outstanding during the trading period multiplied by the average daily closing price of equity securities during the trading period. If a class of equity securities is listed on more than one published market, the average daily closing price is the average daily closing price on the principal market (i.e. the published market on which the greatest volume of trading in those securities occurred during the trading period). If the investor does not know the average daily number of equity securities for any class that are outstanding during the trading period, for the purpose of subparagraph 3.3(2)(a)(i) the most recently published information with respect to the number of outstanding equity securities is to be used in the calculation.

If a publicly traded Canadian business has unlisted equity securities, the amount that the investor’s authorized body determines in good faith and represents to be the fair market value of the outstanding securities of each class of unlisted equity securities is added to the value determined for listed equity securities as determined under subparagraph 3.3(2)(a)(i).

The total liabilities, excluding operating liabilities, cash and cash equivalents are determined from the Canadian business’ most recent quarterly financial statements released before the filing of a notification or an application for review of an investment, in cases where the notice or application was filed before the implementation of the investment or before the implementation of the investment in all other cases.

A Canadian business’ market capitalization, total liabilities excluding its operating liabilities, and cash and cash equivalents are to be expressed in Canadian dollars. Subsection 3.3(5) sets out the method for conversion to Canadian dollars.

Addition of section 3.4 — Entities that are not publicly traded

New section 3.4 defines the method for calculating the enterprise value of a Canadian business that is not a publicly traded entity. For these investments, the enterprise value of the Canadian business is calculated as its total acquisition value, plus its total liabilities, excluding its operating liabilities, minus its cash and cash equivalents.

If the investor is acquiring 100% of the voting interests in the Canadian business, the total acquisition value is the total consideration payable for the acquisition as determined in accordance with the transaction documents that are used to implement the investment.

If the investor is acquiring less than 100% of the voting interests in a Canadian business, the total acquisition value is equal to the total consideration payable by the investor for the acquisition of the Canadian business as well as the total consideration payable, if any, by any other investors, as determined in accordance with the transaction documents that are used to implement the investment. In addition, the total acquisition value includes the amount that the authorized body of the investor who is acquiring control of the Canadian business determines in good faith and represents to be the fair market value of the portion of the Canadian business that is not included in the total consideration payable.

In circumstances where any portion of the total consideration to be paid by the investor is not known at the time the investment is implemented, the value of this unknown portion is the amount that the authorized body of the investor determines in good faith, and represents, to be the fair market value. This is to account for the inclusion in the total consideration to be paid by the investor of, for example, contingent payments such as potential earn-outs the value of which may not be known at the time of the closing of the investment transaction and items for which there is inadequate market price information, such as non-publicly traded shares, to reflect their value.

In cases where the parties to the investment are not acting at arm’s length, or if the total consideration payable for the acquisition of the Canadian business is nominal or if there is no consideration payable, then the total consideration payable is the amount that the authorized body of the non-Canadian determines in good faith and represents to be the fair market value of the Canadian business.

The liabilities, cash and cash equivalents are determined from the Canadian business’ most recently released quarterly financial statements before filing in cases where a filing is made before the implementation of the investment; or the implementation of the investment in all other cases.

A Canadian business’ total acquisition value, liabilities, and cash and cash equivalents are to be expressed in Canadian dollars. Subsection 3.4(8) sets out the method for conversion to Canadian dollars.

Addition of section 3.5 — Canadian businesses acquired by acquisition of assets

New section 3.5 defines the method for calculating the enterprise value of a Canadian business that is acquired by the acquisition of assets. For these investments, the enterprise value of the Canadian business is calculated as its total acquisition value (i.e. total consideration payable for the acquisition), plus the liabilities that are assumed by the investor, minus the cash and cash equivalents that are transferred to the investor, all as determined in accordance with the transaction documents that are used to implement the investment.

In cases where the parties to the investment are not acting at arm’s length, or if the total consideration payable for the acquisition of the Canadian business is nominal or if there is no consideration payable, then the total consideration payable is the amount that the authorized body of the non-Canadian determines in good faith and represents to be the fair market value of the Canadian business.

A Canadian business’ total acquisition value, liabilities, and cash and cash equivalents are to be expressed in Canadian dollars. Subsection 3.5(5) sets out the method for conversion to Canadian dollars.

Addition of section 3.6 — Acquisitions exempted from review by subsection 14.1(4) of the Act

Under subsection 14.1(4) of the Act, as amended by the BIA 2009, indirect WTO investments, including by SOEs, are subject to notification only and are therefore not reviewed. An indirect acquisition is an acquisition of a foreign company that has Canadian subsidiaries. For these investments, the manner of calculating the value of the Canadian business is the book value methodology in section 3.1 of the Regulations. However, this does not apply to indirect investments by non-WTO investors or to investments to acquire of control of cultural businesses. For these investments, the thresholds for review remain at $5 million and $50 million in book value for direct and indirect acquisitions, respectively.

Amendments to section 4

Section 4 currently specifies that only the investor or a person authorized to bind the investor is required to sign an application for review and a notification, as the case may be. The amendments to section 4 provide that the signing authority in respect of applications for review and notifications must be the investor, if the investor is an individual; a director or officer of the investor if the investor is a corporation; or an individual who exercises the powers of a director or officer if the investor is an entity other than a corporation. In addition, in new subsection 4(2), the individual who signs the notification or application for review is required to represent that it is complete and correct to the best of their knowledge and belief.

Amendments to sections 5 and 6

Sections 5 and 6 currently specify that notifications and applications for review are required to be sent to the office of the President of the Investment Canada Agency. In 1995, the ICA was amended to repeal the provisions related to the Agency. The amendments to sections 5 and 6 replace the existing references to the Agency and the office of the President of the Agency with a reference to the Director appointed by the Minister under section 6 of the Act, who is the Director of Investments at Industry Canada or the Director of Investments at the Department of Canadian Heritage for transactions involving the cultural businesses.

Amendments to Schedules I, II and III

The Schedules set out the information that investors must submit when they file a notification or an application for review. Schedule I relates to notifications and Schedule II relates to applications for review. Schedule III is required for an investment that is reviewable under section 15 of the Act.

The amendments to Schedules I and II formalize the information requirements for national security and net benefit review purposes. In addition to having to provide their legal name, business address and telephone number, investors are now also required to provide their fax number, email address, and where the investor is an individual, their date of birth, and whether they, or a subsidiary of the investor, have any equity or voting interest in the Canadian business. An investor is also required to provide this information for the members of its board of directors, the five highest paid officers of the investor and any individual or entity that owns 10% or more of the equity or voting interest of the investor.

The amendments to Schedules I and II require an investor to also provide information with respect to whether it is owned, controlled or influenced, directly or indirectly, by a foreign government; the sources of funding for the investment; the legal name and ultimate controller of the seller of the Canadian business, and the 2007 North American Industry Classifications System Codes for products and services that are or will be manufactured, sold or exported by the Canadian business. Similar to the current requirement with respect to an application for review, where a notification is required, the investor has to provide a copy of the purchase and sale agreement, or, if not available, a description of the principal terms and conditions, including the estimated total purchase price of the investment (i.e. the transaction documents used to implement the investment). The amendments also add information requirements so that enterprise value information can be collected (e.g. the book value, market capitalization or total acquisition value of the Canadian business, as the case may be, as well as its liabilities and cash and cash equivalents).

Item 1 of Schedule III is modified to require the investor to provide his or her legal name.

The requirements for information on whether the investment was in the transportation, financial services or uranium production sectors are removed because, as explained in relation to the repeal of section 2.2, these are no longer required.

“One-for-One” Rule

The “One-for-One” Rule does not apply to the amendments to the Regulations, as they do not impose new administrative burdens on Canadian businesses.

Small business lens

The small business lens does not apply to the amendments to the Regulations, as they do not impact small businesses.

Consultation

The Competition Policy Review Panel, which was mandated in July 2007 to review Canada’s competition and investment laws with a view to boosting Canada’s competitiveness, consulted widely, and received over 155 written submissions and held 13 formal cross-country roundtables.

The amendments to the Regulations also reflect input received from stakeholders following their prepublication in the Canada Gazette, Part I, in July 2009 (http://www.gazette.gc.ca/rp-pr/p1/2009/2009-07-11/pdf/g1-14328.pdf) and in June 2012 (http://www.gazette.gc.ca/rp-pr/p1/2012/2012-06-02/html/reg1-eng.html). In 2009, one of the stakeholders’ main concerns was the methodology for calculating enterprise value for publicly-traded businesses. Since the proposed definition of the trading period depended on the Canadian business’ quarterly fiscal period that immediately precedes the implementation of an investment, investors may have faced unpredictability, in narrow circumstances, as the market capitalization of the Canadian business may not be determined until very close to closing of the investment. The 2012 proposed amendments changed the definition of the trading period so that it is not tied to the quarterly fiscal period that immediately precedes the implementation of an investment, but rather a calendar period. As a result, investors will always be able to determine the market capitalization of the Canadian business in advance of filing.

In 2009, stakeholders also expressed concerns over the proposed approach of retaining the current methodology (i.e. book value) to determine enterprise value with respect to acquisitions of control of businesses that are not publicly traded, and asset acquisitions. Stakeholders stated that such an approach did not adequately reflect the Panel’s recommendation, and that it may impact the structure of investments. In response to this concern, the June 2012 proposed amendments to the Regulations adopted a price-based methodology for determining the enterprise value of a Canadian business in relation to these types of investments.

Following the publication of the proposed amendments to the Regulations in July 2012, stakeholders expressed a number of concerns. Below is a list of those concerns and the changes made to address them.

  • Clarify the definition of “equity security” to exclude debt securities so as to avoid double counting for purposes of determining enterprise value. This concern was addressed by amending the definition “equity security” to indicate that it does not include “a bond, debenture, note or similar instrument representing indebtedness, whether secured or unsecured.”
  • Broaden the definition of “governing body” so that when a fair market value determination is required an unnecessary burden is not placed on the entire board of directors of the investor which could result in delay. This concern was addressed by defining “authorized body” to include a committee of the board, any director or officer or other authorized person to make a fair market value determination when required under the Regulations.
  • A foreign investor may not be able to determine the number of shares of the target Canadian business that are outstanding on a daily basis throughout a trading period, particularly in the context of an unsolicited offer for a publicly-traded company. Where such situations arise, the Regulations now allow foreign investors to base the Canadian business’ market capitalization on the most recently published information concerning the number of outstanding equity securities.
  • Indirect acquisitions of control of a Canadian business, except a cultural business, made by WTO investors are not reviewable for net benefit but do require notifications. As a result, stakeholders suggested that for these investments, the current book value asset methodology should be used to limit the work involved in preparing a notification. New section 3.2 of the Regulations addresses this concern by requiring that the current book value of assets method be used in these circumstances.
  • Stakeholders’ concerns were taken into account with respect to the currency conversion date as it relates to information contained in financial statements. The conversion date is amended to refer to the last date of the period covered by the relevant financial statements rather than the date on which the financial statements are released.
  • The definition of “liabilities” could overstate enterprise value since it would include ordinary course debt (such as accounts payable). The Regulations now state that an entity’s liabilities are equal to the total liabilities, other than operating liabilities, that are listed in its most recent quarterly financial statements released.
  • Stakeholders asked for a simpler method to calculate market capitalization of a Canadian business if its equity securities are listed and traded on more than one published market. This concern has been addressed by using the average daily closing price for only one market, the market on which the greatest volume of trading occurred in the relevant period.
  • With respect to asset acquisitions, stakeholders commented that only the assumed liabilities should be included in the enterprise value calculation instead of the total liabilities that are listed in the most recent quarterly financial statements. This concern was addressed so that the Regulations (in section 3.6) now provide that, for the purpose of calculating the enterprise value for asset acquisitions, the total liabilities are equal to the total of the liabilities that are assumed by the foreign investor, as determined in accordance with the transaction documents.
  • The trading period depends on the month in which an investor’s filing is made. In the case of competing bids for a Canadian business, filings could occur in different months giving rise to the possibility that its enterprise value could be different for different bidders. Stakeholders suggested that this could lead to an unfair result and that it should be addressed by choosing the same period to calculate enterprise value for all bidders of the same Canadian business. However, this would require choosing the timing of the earliest bid and would mean that calculating enterprise value for subsequent bidders could be based on a time period that is significantly earlier than the timing of the actual bid. Moreover, implementing this approach would also require establishing a time limit for subsequent bids, introducing further complexity and an arbitrary cut off. As a result, no changes were made to the definition of the trading period and each investor’s calculation of the enterprise value of a Canadian business is based on the month in which their filing is made.
  • Stakeholders raised concerns with the burden the additional information requirements in Schedules I and II would impose on investors. The additional information is required so that effective and efficient national security reviews of potential foreign investments in Canada can be undertaken and the Government’s policy on SOEs can be fulfilled.

In 2012, the Government announced clarifications to the foreign investment review process, including with respect to how Canada assesses investments by SOEs. Legislative amendments to the ICA to implement these reforms were included in the EAP 2013. The legislative amendments, specifically to maintain the existing asset value threshold for SOEs, are reflected in the amended Regulations.

Rationale

The amendments to the Regulations are aimed at improving Canada’s foreign investment review framework by ensuring that significant foreign investment proposals are reviewed to determine whether they are likely to be of net benefit to Canada and to provide the security and intelligence departments and agencies with additional information about investors and their investments. This is done so that national security reviews can assist the Minister in determining whether an investment could be injurious to Canada’s national security.

Implementation, enforcement and service standards

The amended Regulations will come into force on the day on which section 137 of the Economic Action Plan 2013 Act, No. 1, comes into force by order of the Governor in Council, or, if it is later, on the day on which the amended Regulations are registered.

Investors will be able to visit Industry Canada’s and Canadian Heritage’s Web sites (http://www.ic.gc.ca/eic/site/ica-lic.nsf/eng/Home and http://www.canadianheritage.gc.ca/invest/index-eng.cfm) for information on the amended Regulations. New forms, including the new information requirements for notifications and applications for review, would also be available on these Web sites.

Industry Canada and Canadian Heritage do not anticipate the requirement for any significant increases to human or financial resources in order to implement these Regulations. The existing compliance and enforcement mechanisms are sufficient and would be applied as necessary.

Contact

Jenifer Aitken
Director General
Investment Review Sector
Industry Canada
235 Queen Street
C.D. Howe Building, Room 554A, West Tower
Ottawa, Ontario
K1A 0H5
Telephone: 343-291-1698
Fax: 613-996-2515