Report on the Administration of the Investment Canada Act (Canadian Heritage)

Introduction

The Investment Canada Act (the Act) has been in force since 1985 and allows for the review of significant investments in Canada by non-Canadians in a manner that encourages investment, economic growth and employment opportunities in Canada. Since 2009, the Act also provides for the review of investments that could be injurious to national security.

Dual responsibility for the Act

The Act is co-administered by the Minister of Canadian Heritage and the Minister of Industry. The Minister of Canadian Heritage is responsible for assessing investments in Canada's cultural sector, while the Minister of Industry is responsible for assessing investments in all other sectors of the economy. The Minister of Industry is also responsible, in consultation with the Minister of Public Safety, for the review of investments that may be injurious to Canada's national security.

Section 6 of the Act provides for the establishment of a director of investments to advise and assist the Minister in the administration of the Act. Given the shared responsibility for the Act, there is a director of investments at both the Department of Canadian Heritage and at Industry Canada.

At the Department of Canadian Heritage, day-to-day administrative duties related to the Act, including the assessment of investors' submissions, the formulation of recommendations and the monitoring of the performance of investments are the responsibility of the Cultural Sector Investment Review Branch.

Changes to the Investment Canada Act and Investment Canada Regulations

Amendments made to the Act, passed on June 6, 2013, as part of the Economic Action Plan 2013 Act, No. 1 (EAP 2013), came into force in March and April 2015. In order to implement these amendments to the Act, certain changes to the Investment Canada Regulations and the National Security Review of Investments Regulations were necessary to, among other things, prescribe how enterprise value is calculated and to collect additional information relevant to national security and net benefit reviews. These amendments also provide more time to both Ministers (i.e. 30 days instead of five days) to complete a net benefit review under the Act following any national security review of a foreign investment.

However, the cultural business thresholds triggering an automatic net benefit review are unchanged and remain based on asset values of $5 million or more for direct acquisitions and $50 million or more for indirect acquisitions.

Annual Report

Subsection 38.1 of the Act requires the Director of Investments to submit a report on the administration of the Act – other than for the national security provisions in part IV.1 – to the Minister each fiscal year. The report is then made available to the public by the Minister. This marks the sixth such report by the Department of Canadian Heritage. It covers the period from April 1, 2014 to March 31, 2015.

More information on the Minister of Industry's administration of the Act can be found at: http://www.ic.gc.ca/eic/site/ica-lic.nsf/eng/Home

What is the Cultural Sector?

The Investment Canada Act applies to non-Canadians establishing new businesses in Canada or acquiring existing Canadian businesses. Cultural businesses that fall within the purview of the Minister of Canadian Heritage include:

• The publication, distribution or sale of books, periodicals, magazines or newspapers in print or machine readable form, which means the Act may also be applied to digital and audio versions;
• The production, distribution, sale or exhibition of film or video recordings;
• The production, distribution, sale or exhibition of audio or video music recordings;
• The publication, distribution or sale of music in print or machine readable form. The phrase "music in print" means that the Act applies to sheet music.

Filing requirements and review thresholds

Under the Investment Canada Act, a non-Canadian establishing or acquiring control of a Canadian business must either notify the Government of his/her investment or, in some cases, undergo a thorough review by the Minister. The type of process required depends on the financial value of the Canadian business.

The Act contains provisions unique to the cultural sector, notably, lower financial thresholds for review compared to other sectors of the economy and the ability to review the establishment of new cultural businesses.

Automatic reviews

Certain investments in the cultural sector are the subject of automatic review under the Act and must be approved by the Minister for the investment to proceed. These include direct acquisitions of a Canadian cultural business with Canadian assets valued at $5 million or more and indirect acquisitions of Canadian cultural businesses where the value of the Canadian assets is $50 million or more. An indirect acquisition occurs when a Canadian subsidiary is acquired as a result of the purchase of a parent company located outside of Canada.

Notifications and discretionary reviews

All other investments by non-Canadians in the cultural sector (lower value acquisitions and establishments of new businesses) are subject to notification under the Act. This involves submitting a form to the Department that provides basic information about the planned investment such as the type of business activities carried on by the investor and the Canadian business. Many foreign investments in Canada's cultural sector are subject only to notification.

Notification forms can be found at: https://www.canada.ca/content/dam/pch/documents/corporate/publications/plans-reports/departmental-performance-report-2014-2015/main-report/pch-form-notif-app-eng.pdf

The Government may, in the case of these investments, order a review through an order in council, on the advice of the Minister of Canadian Heritage, if it believes it is in the public interest to do so and the investment is related to Canada's cultural heritage or national identity.

The Minister of Canadian Heritage has recommended the use of this discretionary power sparingly – of 424 notifications received since 1999, reviews were ordered in 65 cases
(15 per cent).

When a proposed investment is reviewed, whether it is automatic or discretionary, an investor is required to submit an application containing detailed commercial information, including its plans for the Canadian business to be acquired or established. These plans describe the investor's proposed strategies regarding such areas as management, employment, capital expenditures, innovation and possible expansion. Of particular note in the cultural sector are proposals related to the development of Canadian creators and the promotion and accessibility of Canadian cultural products.

Application forms can be found at: https://www.canada.ca/content/dam/pch/documents/corporate/publications/plans-reports/departmental-performance-report-2014-2015/main-report/pch-form-notif-app-eng.pdf

It should be noted that the Act contains strict confidentiality provisions that are designed to protect this sensitive commercial and business information. This protection covers most of the material associated with the review of an investment.

Cette protection couvre la plupart du matériel associé à l'examen d'un investissement.

Net benefit for Canada

When a review of an investment is undertaken, the Act (section 20) sets out specific provisions to guide the Minister in the decision as to whether a given investment is likely to be of net benefit to Canada. The six factors weighed in assessing net benefit are:

• economic impact (employment, exports, etc.)
• participation by Canadians in the Canadian business
• productivity, technological development, and product variety in Canada
• competition in Canada
• compatibility of the investment with national industrial, economic and cultural policies
• contribution to Canada's ability to compete in world markets

Le texte intégral du test d'avantage net se trouve à : http://laws-lois.justice.gc.ca/fra/lois/I-21.8/page-6.html

The full text of net benefit test can be found at: http://laws-lois.justice.gc.ca/eng/acts/I-21.8/page-6.html#docCont

Under section 21 of the Act, the Minister can also take into account any legally binding commitments offered by investors to demonstrate how the investment will benefit Canadians. Investors may commit to a wide range of undertakings during a review; for example, to create jobs across Canada, to support research and artist development programs, or to promote Canadian cultural products.

Each undertaking is tailored, through negotiations between the Department and the investor, to reflect the commercial circumstances of the businesses involved in the proposed investment. The investor's commitments usually relate to specific business activities or practices aimed at providing economic and other benefits to Canada, the cultural sector, and to Canadian artists and consumers. Investors may offer, for example, to create internship programs for Canadian cultural workers and support educational institutions and training programs for the next generation of Canadian creators.

As previously mentioned, detailed information about investments is protected under the confidentiality provisions of the Act and cannot be shared with third parties without the investor's agreement. However, a list of completed reviews and notifications of investments in the cultural sector is posted on the Canadian Heritage web site. Decisions made in fiscal year 2014-2015 can be found at: https://www.canada.ca/content/dam/pch/documents/corporate/publications/plans-reports/departmental-performance-report-2014-2015/main-report/pch-form-notif-app-eng.pdf

Ensuring performance

For those investments that are approved, the Act authorizes the Minister to monitor the performance of an investor and to take appropriate action to ensure that commitments are met. In most cases, the Department evaluates performance through an annual report submitted by the investor.

Provision of opinions

The Minister is also responsible for issuing interpretive opinions under the Investment Canada Act. These opinions are often related to the definition of a cultural business and the applicability of the Act to specific investment proposals. Investors may also request a ministerial opinion on the Canadian status of a particular business, that is, whether the business would be considered Canadian or non-Canadian for the purposes of the Act and its requirements.

The Cultural Sector Investment Review Branch at the Department of Canadian Heritage also provides information on a regular basis to potential investors and members of the public related to the application of the Act.

For more information relating to foreign investment in Canada's cultural sector, please contact:

Department of Canadian Heritage
Cultural Sector Investment Review
216 - 25 Eddy Street, 7th Floor
Gatineau, Quebec K1A 0M5

Email

Harold.Boies@canada.ca

Telephone

819-994-5637
1-866-811-0055 (toll-free)

TTY

1-888-997-3123 (toll-free)

Website

https://www.canada.ca/en/canadian-heritage/services/cultural-sector-investment-review/contact-us.html