The investment Canada act (ICA) is a federal law that regulates foreign direct investment in Canada. It is important for foreign investors to understand the ICA because it sets out the rules and procedures for acquiring or establishing a Canadian business, as well as the potential consequences for non-compliance. The ICA aims to balance the benefits of foreign investment for Canada's economy with the protection of Canada's national security and cultural interests. In this section, we will provide an overview of the main features and objectives of the ICA, as well as some insights from different perspectives on its impact and effectiveness.
Some of the key aspects of the ICA are:
1. The ICA applies to all non-Canadians who acquire control of an existing Canadian business or who wish to establish a new Canadian business, unless a specific exemption applies. Non-Canadians include individuals, corporations, partnerships, trusts, joint ventures, and other entities that are not Canadian citizens or permanent residents, or that are controlled by non-Canadians.
2. The ICA distinguishes between two types of investments: those that are subject to notification and those that are subject to review. Notification is a simple administrative process that requires the non-Canadian investor to submit basic information about the investment to the Minister of Innovation, Science and Economic Development (the Minister) within 30 days of its implementation. Review is a more complex and rigorous process that requires the non-Canadian investor to submit an application for review to the Minister before implementing the investment. The Minister will then assess whether the investment is likely to be of net benefit to Canada, based on various economic and policy factors. The Minister may approve, reject, or impose conditions on the investment.
3. The ICA also allows the government to review any foreign investment, regardless of its size or nature, if there are reasonable grounds to believe that it could be injurious to Canada's national security. The national security review process involves consultations with various security and intelligence agencies, as well as other relevant departments and agencies. The Minister may prohibit or unwind the investment, or order the non-Canadian investor to take certain measures to mitigate the risks.
4. The ICA provides for various rules and presumptions regarding the determination of Canadian status, acquisition of control, timing, and operation of other acts. These rules and presumptions are intended to clarify and simplify the application of the ICA and to ensure consistency and predictability for foreign investors.
5. The ICA also empowers the Minister to issue regulations, guidelines, interpretation notes, written opinions, and administrative documents to provide further guidance and transparency on the administration and enforcement of the ICA. These instruments cover various topics such as thresholds, exemptions, factors, procedures, forms, timelines, reporting requirements, and best practices.
6. The ICA establishes a range of remedies, offences, and punishments for violations of the ICA or its regulations. These include injunctions, divestiture orders, fines, imprisonment, and revocation of approvals. The ICA also protects privileged information from disclosure and provides for confidentiality undertakings between the parties involved in a review or a national security investigation.
The ICA has been subject to different opinions and evaluations from various stakeholders and experts over the years. Some of the common themes and perspectives are:
- The ICA is seen as a tool to attract foreign investment that can contribute to Canada's economic growth, innovation, competitiveness, and global integration . Foreign investment can bring capital, technology, skills, markets, and opportunities for Canadian businesses and workers .
- The ICA is also seen as a mechanism to protect Canada's national interests from foreign investments that could pose a threat to Canada's national security or cultural identity . National security reviews can prevent foreign actors from gaining access or control over sensitive Canadian assets or data that could harm Canada's sovereignty or security . Cultural reviews can ensure that foreign investments do not adversely affect Canada's cultural industries or diversity .
- The ICA is sometimes criticized for being too vague, discretionary, unpredictable, or politicized in its application and outcomes . Some foreign investors may face uncertainty or delays in obtaining approvals or may face rejection or conditions that could affect their business plans or operations . Some domestic stakeholders may question the criteria or rationale behind certain decisions or may challenge the adequacy or effectiveness of the review process or its enforcement .
- The ICA is also subject to periodic reforms and updates to reflect changing economic realities and policy priorities . Some recent examples include lowering the review thresholds for certain types of investments (such as state-owned enterprises or trade agreement partners), expanding the scope and powers of national security reviews, and introducing new policies or guidelines on specific sectors or issues (such as critical minerals or pandemic-related investments) .
The ICA is a complex and dynamic law that affects foreign investors and Canadian businesses alike. It is important for foreign investors to understand the ICA and its implications for their investments in Canada, and to seek professional advice and assistance when necessary. It is also important for Canadian businesses to be aware of the opportunities and challenges that foreign investment can bring, and to engage with the government and other stakeholders on the development and implementation of the ICA.
One of the main objectives of the Investment Canada Act (ICA) is to ensure that foreign investments in Canada are beneficial to the country's economic and social development. The ICA requires that certain types of investments by non-Canadians, such as acquisitions of control of Canadian businesses or establishments of new Canadian businesses, be either notified or reviewed by the Minister of Innovation, Science and Economic Development (ISED) or the Minister of Canadian Heritage, depending on the nature of the business. The review process is designed to assess whether the proposed investment is likely to be of net benefit to Canada, taking into account various factors and criteria specified in the ICA. In this section, we will provide an overview of the ICA review process and explain how the net benefit test is applied in practice.
The ICA review process can be summarized as follows:
1. The investor submits an application for review to ISED or the Minister of Canadian Heritage, along with supporting documents and information. The application must include a description of the investment, the business plan, the benefits that will result from the investment, and any undertakings or commitments that the investor is prepared to make to demonstrate net benefit.
2. The Minister acknowledges receipt of the application and determines whether it is complete. If the application is incomplete, the Minister may request additional information from the investor. The review period does not start until the application is complete.
3. The Minister conducts a review of the investment, taking into account the factors and criteria listed in section 20 of the ICA. These include:
- The effect of the investment on the level and nature of economic activity in Canada, including employment, resource processing, and utilization of parts, components, and services;
- The degree and significance of participation by Canadians in the Canadian business and in any industry or industries in Canada affected by the investment;
- The effect of the investment on productivity, industrial efficiency, technological development, product innovation, and product variety in Canada;
- The effect of the investment on competition within any industry or industries in Canada affected by the investment;
- The compatibility of the investment with national industrial, economic, and cultural policies;
- The contribution of the investment to Canada's ability to compete in world markets.
4. The Minister consults with other federal departments and agencies, provincial governments, industry associations, labour organizations, and other stakeholders that may have an interest or expertise in relation to the investment. The Minister may also seek advice from independent experts or consultants.
5. The Minister makes a decision on whether to approve or reject the investment based on whether it is likely to be of net benefit to Canada. The decision must be made within 45 days after receiving a complete application, unless extended by another 30 days by the Minister or by a longer period agreed upon by both parties.
6. The Minister notifies the investor of the decision in writing. If the investment is approved, the Minister may attach conditions or undertakings to the approval that are consistent with the benefits claimed by the investor or that are necessary to ensure net benefit. If the investment is rejected, the Minister must provide reasons for the decision and may offer an opportunity for the investor to make additional representations or modifications to address any concerns.
The ICA review process is not a one-size-fits-all approach. Each investment is evaluated on its own merits and circumstances, taking into account both quantitative and qualitative factors. The net benefit test is not a rigid formula or a simple cost-benefit analysis. Rather, it is a holistic and balanced assessment of how the investment will affect Canada's economic and social well-being in both the short and long term.
Some examples of investments that have been approved under the ICA review process are:
- In 2020, Brookfield Asset Management Inc., a Canadian company controlled by nationals of specified trade agreement states (STAS), acquired control of Genworth MI Canada Inc., a Canadian company that provides mortgage insurance products and services. The transaction was subject to review because it exceeded the enterprise value threshold of $1.613 billion for STAS investors in 2020. The transaction was approved by ISED after Brookfield agreed to several undertakings related to maintaining Genworth's head office in Canada, supporting its employees and customers, investing in its business operations and innovation activities, and complying with regulatory requirements.
- In 2019, Nutrien Ltd., a Canadian company controlled by nationals of STAS, acquired control of Ruralco Holdings Limited (Ruralco), an Australian company that provides agribusiness products and services. The transaction was subject to review because Ruralco carried on business in Canada through its subsidiary CRT Group Inc., which operated retail outlets for agricultural inputs. The transaction was approved by ISED after Nutrien agreed to several undertakings related to maintaining CRT's presence in Canada, supporting its employees and customers, investing in its business operations and innovation activities, and complying with regulatory requirements.
- In 2018, Bayer AG (Bayer), a German company, acquired control of Monsanto Company (Monsanto), a U.S. Company that produces seeds, biotechnology traits, and herbicides. The transaction was subject to review because Monsanto carried on business in Canada through its subsidiaries that operated research and development facilities, seed production plants, and distribution centres. The transaction was approved by ISED after Bayer agreed to several undertakings related to divesting certain assets and businesses to BASF SE, a German company, maintaining Monsanto's presence in Canada, supporting its employees and customers, investing in its business operations and innovation activities, and complying with regulatory requirements.
navigating the complexities of the investment Canada Act (ICA) demands a nuanced understanding of its intricate regulatory framework and a keen insight into the multifaceted landscape of foreign investment in Canada. For foreign investors eyeing the Canadian market, comprehending the provisions and implications of the ICA is pivotal. The ICA serves as a gatekeeper, ensuring that foreign investments align with the economic and national interests of Canada. This conclusion aims to distill the critical takeaways and recommendations for foreign investors who seek to navigate the ICA successfully, fostering a more comprehensive understanding of this regulatory landscape.
1. Thorough Due Diligence is Paramount: Prior to any investment, foreign investors must conduct exhaustive due diligence. This includes understanding the various thresholds triggering ICA reviews, comprehending the different factors that influence review outcomes, and recognizing the potential impact on the investment strategy. For instance, if a foreign entity is eyeing a significant acquisition in a Canadian company, being aware of the ICA's thresholds based on asset value or the nature of the investment is crucial. Researching past investment decisions and reviews can provide insights into the regulator's stance, aiding in making informed investment decisions.
2. Engage Proactively with ICA Authorities: Communication and proactive engagement with the Investment Review Division of Innovation, Science, and Economic Development Canada can be highly beneficial. Seeking guidance or clarifications on the ICA's application to specific investments can offer a clearer perspective and possibly streamline the review process. For example, before finalizing an acquisition, a foreign investor may choose to engage with ICA authorities to understand the nuances of the review process and ensure compliance from the outset, potentially avoiding delays or complications down the line.
3. Consider National Interest and Mitigation Strategies: Understanding the concept of "net benefit" to Canada is pivotal. Demonstrating how an investment can be advantageous to Canada's economy, employment, and innovation is critical for approval. Additionally, for investments that might raise concerns, foreign investors can consider proposing mitigation strategies to address these concerns. An example could be a foreign acquisition of a Canadian technology company where the investor proposes measures to safeguard sensitive technology or commit to local job creation, thereby aligning with Canada's interests.
4. Seek Legal and Expert Advice: Given the complexity of the ICA, seeking legal counsel and expert advice is indispensable. Lawyers and consultants specializing in Canadian investment laws can provide invaluable guidance in navigating the intricacies of the ICA. Their expertise can assist in structuring investments to optimize the chances of approval while ensuring compliance with the regulatory framework.
5. Adaptability and Patience are Key: The ICA landscape can change due to amendments in regulations or shifts in governmental policy. Therefore, foreign investors must remain adaptable and patient. Flexibility in investment strategies and the ability to pivot in response to changing regulations or governmental directives is essential for long-term success in the Canadian market.
Successfully navigating the ICA necessitates a comprehensive understanding of its provisions, strategic planning, and proactive engagement with regulatory bodies. By conducting thorough due diligence, engaging with authorities, considering national interest, seeking expert advice, and maintaining adaptability, foreign investors can position themselves favorably within the regulatory framework, maximizing opportunities for successful investments in Canada.
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