Notification and Application for Review Thresholds

Whether a notification or an application for review is required for a particular investment depends upon whether certain asset thresholds are exceeded with respect to the Canadian business.

An application for review is required where a non-Canadian investor proposes to acquire control directly of a Canadian business with assets having a book value of CDN$5 million or more, or, with respect to an indirect acquisition of control (i.e., by virtue of an acquisition of a corporation incorporated outside of Canada that controls an entity that carries on a Canadian business) where the Canadian business has assets with a book value of CDN$5 million or more (where more than half of the assets acquired, by book value, are in Canada) or CDN$50 million or more (where less than half of the assets acquired, by book value, are in Canada). The above is subject to different thresholds for World Trade Organization ("WTO") investors and particular sensitive sector rules described below.

The thresholds for a direct and indirect acquisition are substantially increased where the investor is a national of a country that is a member of the WTO or, where immediately prior to the implementation of the investment, the subject Canadian business is controlled by investor(s) of a WTO member country. For direct investments made in the year 2005, the applicable threshold for WTO investors is CDN$250 million. This threshold increases annually in accordance with a formula set out in the Investment Canada Act. In the case of an indirect acquisition that is made by a WTO investor, an application for review will not be required.

The WTO thresholds do not apply where the Canadian business is engaged in a sensitive sector. Sensitive sectors include: (a) the production of uranium; (b) the provision of financial services; (c) the provision of transportation services; and (d) where a business is a "cultural business" (a format based definition is included in the statute).

If the above thresholds are exceeded, then an application for review must be filed with the Investment Review Division of Industry Canada and/or, if the Canadian business is involved in certain cultural activities, with the Department of Canadian Heritage. If the above thresholds are not exceeded, a notification must be filed with Industry Canada or the Department of Canadian Heritage or both if a cultural and a non-cultural business are being acquired.

Notification

Any acquisition of control of a Canadian business by a non-Canadian that is not subject to an application for review must be notified to the Investment Review Division of Industry Canada or, in respect of a business engaged in certain cultural activities, to the Department of Canadian Heritage. A notification also must be filed where a non-Canadian establishes a new business in Canada that is not related to a business presently carried on in Canada, or, if related, is a cultural activity.

Where a notification is required it must be filed at anytime before or within 30 days after the acquisition is made, the new Canadian business is established, or a new business area is entered into. A notification cannot be converted into an application for review except that in the case of a business engaged in certain cultural activities the Canadian Government has the power to require a full application for review once a notification is filed.

Application for Review

The form of an application for review is governed by the Investment Canada Act and related regulations. Application materials include, inter alia, financial statements, a listing of Canadian offices and number of employees and, most importantly a "Plans Document" which contains the investor's intentions with respect to the Canadian business. Generally, these must be provided, pre-closing, to the Investment Review Division of Industry Canada, or where the acquisition involves the acquisition of a business engaged in cultural activities, to the Department of Canadian Heritage.

The Investment Canada Act prescribes a net benefit test for determining whether a proposed investment should be permitted; namely, whether the relevant Minister (being the Minister of Industry or the Minister of Canadian Heritage) is "satisfied that the investment is likely to be of net benefit to Canada". The relevant Minister has 45 days from the date on which an application for review is submitted to reach a conclusion as to whether the investment is of net benefit to Canada. This period may be unilaterally extended by the Minister for an additional 30 days and for longer, with the consent of the Investor. In making a net benefit determination, the Minister is directed to take into account, where relevant, the following factors, which should be addressed in the Plans Document:

1. the effect of the investment on the level and nature of economic activity in Canada;
2. the degree of involvement by Canadians in the business;
3. the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada;
4. the effect of the investment on competition within any industry or industries in Canada;
5. the compatibility of the investment with national industrial, economic and cultural policies; and
6. the effect of the investment on Canada's ability to compete in world markets.

The responsible Minister may not be satisfied that the proposed investment is likely to be of "net benefit to Canada" on the basis of submitted materials. In such instances, an investor may make representations and submit proposed binding undertakings to the responsible Minister to alleviate the concerns of the Minister. Undertakings may cover, for example, commitments regarding the maintenance of a certain number of employees in Canada, the expenditure of a certain amount of research and development funds in Canada, maintaining a certain amount of support for surrounding communities, committing to a certain amount of capital investment in the Canadian business or other similar requirements. Undertakings which are dependent upon general economic considerations may be acceptable to the Minister.

Heritage Canada

While the Investment Review Division of Industry Canada and the Minister of Industry have general jurisdiction for administering the Investment Canada Act and reviewing investments thereunder, jurisdiction with respect to investments in businesses engaged in certain defined cultural activities rests with the Department of Canadian Heritage and the Minister of Canadian Heritage. The cultural activities are:

1. the publication, distribution or sale of books, magazines, periodicals or newspapers in print or machine readable form;
2. the production, distribution, sale or exhibition of film or video products;
3. the production, distribution, sale or exhibition of audio or video music recordings; and
4. the publication, distribution or sale of music in print or machine readable form.

Jurisdiction over investments in radio communications and broadcast undertakings business rests with Industry Canada and not the Department of Canadian Heritage; however, it is still a cultural business for the purpose of determining notification and application for review thresholds.

Where a business is subject to an application for review due to its involvement in prescribed cultural activities, the Minister of Canadian Heritage will, in reaching a net benefit decision, determine whether the investment is compatible with Canadian cultural policies. Some of the current policies are restrictive with respect to foreign investment, such that foreign investment in certain cultural industries may be precluded except in limited circumstances.