Shuli Rodal, Peter Glossop, Michelle Lally, Margaret Kim, Jaime Auron, Peter Franklyn
June 23, 2017
This article is further to Osler’s December 2016 post on what to watch for in Canadian foreign investment review in 2017. At that time, we predicted that liberalization would be a dominant foreign investment theme in 2017.
On June 22, 2017, Bill C-44, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2017 and other measures (the Budget Act), received Royal Assent. The Budget Act implements the previously announced increase of the generally applicable threshold for “net benefit” review under the Investment Canada Act (ICA) to $1 billion.
Upcoming ICA “net benefit” review threshold increases
Now that the Budget Act has come into force, it has triggered an immediate increase to $1 billion for the review threshold for most investments or dispositions by WTO investors that are not state-owned enterprises (SOEs). The $1 billion threshold, calculated based on enterprise value of the Canadian business being acquired, is a significant increase over the $800 million threshold that was in place since April of this year, which in turn was a significant increase over the $600 million threshold then in effect. It is expected that the $1 billion threshold will result in even fewer transactions being subject to pre-closing review under the ICA, representing a meaningful liberalization of Canada’s approach to foreign investment.
Any ICA review application filed prior to June 22, 2017 will not be subject to further review if the enterprise value of the business to which the application relates is less than $1 billion.
The $1 billion threshold will apply until the end of 2018. Starting January 1, 2019, the $1 billion threshold will be annually adjusted to reflect a GDP-based index. A further increase to the review threshold will apply to a select group of WTO investors following the proclamation into force of implementing legislation for the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). This development is expected in the near future. Pursuant to CETA, a $1.5-billion investment review threshold will apply to European Union investors, as well as to investors from certain Free Trade Agreement (FTA) partners, as a result of Most-Favoured-Nation (MFN) commitments. The FTA partner countries that are entitled to such MFN treatment for higher ICA threshold are the United States, Mexico, Chile, Colombia, Panama, Peru, Honduras and South Korea.
Annual report to include national security review information
The Budget Act also provides that the annual report on the administration of the ICA shall include information in respect of foreign investments reviewed pursuant to the ICA’s national security provisions. This information was included in the last annual report, but not required by law.
This amendment is consistent with the trend of increased transparency in administration of the national security review process, as highlighted by the National Security Guidelines released on December 19, 2016. For more information on the National Security Guidelines, see Osler’s post here.