National Security Review Under this process, the federal Cabinet may, on the recommendation of the Minister, order a national security review. If Cabinet orders a review, the Minister is required to send a notice to inform the investor that the investment will be reviewed and that the proposed transaction cannot be completed while the review is pending. If the transaction has already been completed, a review can still be ordered (and remedies, including divestiture of the Canadian business, can still be required). The term “national security” is not defined in the ICA, and there are no monetary thresholds that must be exceeded to trigger a national security review. Moreover, the general net benefit review threshold requirement that there be an acquisition of control of a Canadian business has been relaxed, so that a national security review can occur when there has been an acquisition “in whole or in part” of an entity carrying on all or any part of its operations in Canada if the entity has (i) a place of operations in Canada; (ii) an individual or individuals in Canada who are employed or self-employed in connection with the entity’s operations; or (iii) assets in Canada used in carrying on the entity’s operations. Over time, national security considerations have gained prominence in the Canadian government’s substantive review of investments by non-Canadian investors. For example, during the 2022-23 period, 22 investments in Canada were subject to formal national security reviews, whereas only five acquisitions of control of (non-cultural) Canadian businesses were subject to pre- closing reviews under the net benefit review process. In addition to the Canadian government’s specific policies with respect to certain categories of investments and investors (summarized below), considerations that appear to be relevant to the government’s assessment are the activities of the Canadian business, the nature
In order to establish net benefit under these criteria, the Minister usually requires undertakings from the acquirer. Typical undertakings relate to maintaining certain employment levels in Canada, guaranteeing participation of Canadians as directors and in management, processing resource products in Canada, making capital expenditures or investing in research and development in Canada and transferring technology to Canada. For reviews involving the acquisition of a cultural business, the Minister of Canadian Heritage may also require the investor to commit to promoting, distributing and marketing Canadian content and cultural products, ensuring Canadians continue to participate in the cultural business, and contributing to cultural initiatives in Canadian communities. The Canada-United States-Mexico Agreement (CUSMA) imposes certain restrictions on the types of undertakings that the Minister may require from CUSMA investors. The concept of a “CUSMA investor” is similar to the definition of a “WTO investor,” except that it refers to individuals who are “nationals” of the United States or Mexico. CONSULTATIONS WITH STAKEHOLDERS When IRD or Canadian Heritage receives an application for review, it will consult with all the provinces in which the Canadian business has assets or employees, as well as federal government departments with relevant expertise. This process allows the affected provinces and departments to review the proposed investment and inform IRD and/or Canadian Heritage if they have any concerns or objections. Finally, the Competition Bureau is charged with providing advice regarding the effect of the investment on competition in the relevant industry or industries in Canada.
50
Doing Business in Canada
Powered by FlippingBook