CHAPTER 06 Foreign Investment
“Enterprise value” and “asset value” are calculated in accordance with the Investment Canada Regulations, and the method for calculation varies depending on the nature of the Canadian business being acquired (i.e., publicly traded versus privately held). A non-Canadian’s acquisition of control of a Canadian business that does not exceed these thresholds is subject to notification only under the net benefit review provisions of the ICA. There are very few applications for review each year relative to the number of notifications: In the 2022-23 reporting period, 1,010 filings were made under the net benefit review provisions, of which only five were applications for review. THE REVIEW CRITERION: NET BENEFIT TO CANADA If an acquisition is subject to net benefit review, the Minister must be satisfied that the proposed acquisition is likely to be of “net benefit to Canada.” The ICA requires the Minister to take into account certain factors, including (i) the effect of the acquisition on the level and nature of economic activity in Canada (including employment in Canada); (ii) the degree and significance of participation by Canadians in the Canadian business in particular and in the relevant industry in general; (iii) the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada; (iv) the effect of the investment on competition in the relevant industry or industries in Canada; (v) the compatibility of the investment with Canadian industrial, economic and cultural policies, taking into account the policy objectives of affected provinces; and (vi) the effect of the investment on Canada’s ability to compete in world markets.
The IRD and Canadian Heritage have released specific policies with respect to the application of these criteria to various sectors, including the book publishing, film, video games and critical mineral industries in Canada, and to certain categories of investor. For example, when the acquirer is a foreign SOE, ICA guidelines state that the net benefit to Canada review will focus particularly on whether the acquirer adheres to Canadian standards of corporate governance and whether the Canadian business will continue to operate on a commercial basis. In addition, IRD policies (summarized below) provide that investments by foreign SOEs to acquire control of a Canadian oil sands business or Canadian businesses engaged in the critical minerals sector will be found to be of net benefit on an exceptional basis only.
If an acquisition is subject to review, the Minister must be satisfied that the proposed acquisition is likely to be of “net benefit to Canada.” In order to establish net benefit, the Minister usually requires undertakings from the acquirer.
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