On Friday, the Foreign Investment Review Committee
(“FIRC”) of the Canadian Bar
Association’s (“CBA”)
Competition Law Section met with representatives from the
Investment Review Division (“IRD”),
Innovation, Science and Economic Development Canada
(“ISED”) and the Cultural Sector
Investment Review (“CSIR”), Canadian
Heritage. The meeting featured interesting and informative
presentations from representatives from both the IRD and CSIR,
followed by a Q&A. Outlined below are some of the
highlights.
- Highlights from the IRD’s
Presentation
(a) Net Benefit to Canada Review Threshold for UK
Investors
The United Kingdom (“UK”), which
has left the European Union (“EU”),
and by extension the Canada-European Union Comprehensive Economic
and Trade Agreement (“CETA”), is
currently in a transition period which is set to end on December
31, 2020. During the transition period, UK investors have benefited
from the net benefit to Canada review threshold available to trade
agreement investors. As of January 1, 2021, investments into Canada
by UK investors will be subject to the lower threshold for World
Trade Organisation (“WTO”)
investors.
On November 21, 2020, Canada’s Minister of Small Business,
Export Promotion and International Trade, along with the UK’s
Secretary of State for International Trade,
announced the successful conclusion of talks for the
Canada-United Kingdom Trade Continuity Agreement – an interim
deal that will be in place as Canada and the UK work towards
negotiating a comprehensive free trade agreement. When that
agreement comes into force, it will provide UK investors with the
benefits of CETA and UK investors will again benefit from the trade
agreement investor threshold.
(b) Impact of COVID-19 on National Security
Review
As discussed in our
previous post, the Minister of Innovation, Science and Industry
released a policy
statement on April 18, 2020, which provides that, in light
of the COVID-19 pandemic, certain foreign investments into Canada
will be subject to enhanced scrutiny. The policy statement,
summarized below, is expected to be in effect until Canada recovers
from the COVID-19 pandemic.
Under the extraordinary circumstances of the global pandemic,
the Government announced that it will subject foreign investments
of any value into Canada to enhanced scrutiny under the ICA:
- in Canadian businesses that are related to public health or
involved in the supply of critical goods and services to Canadians
or to the Government, whether those foreign investments are
controlling or not, and - by state-owned investors or private investors assessed as being
closely tied or subject to direction from foreign governments.
As a consequence of this new policy, the IRD has more closely
scrutinized a number of transactions involving investments from
state owned enterprises and investments into health and health
related services or goods.
Despite the enhanced scrutiny of some acquisitions and the
extension of national security review timelines, Canada remains
open to investment and is still a foreign investment destination of
choice.
The IRD encourages investors into Canada reach out to the IRD
early in the lifecycle of a deal, including by proactively sharing
information, a practice which is becoming more common. The
following is a list of information that is commonly provided to the
IRD, and which the IRD encourages parties to provide:
- third party relationships
- details of source of funds
- upstream ownership details, including ultimate controllers
- contacts or other relationships with Canadian governments
- Highlights from CSIR’s Presentation
As outlined in last year’s
Annual Report, most cultural sector investment filings arise
from the film and video industries, with a significant increase
coming from video games and post-production activities.
Representatives from CSIR outlined how Canadian Heritage’s
interpretation of what is a cultural product or business activity
has evolved over time, particularly in regards to video games.
Canadian Heritage has typically considered a business activity
to be “culturally significant” where, among other
considerations, it:
- (i) is a professional activity (typically by one who assumes
risks), as opposed to amateur content; - (ii) involves the creation, selection of original content,
contractual agreements with creators, authors, or copyright
holders; - includes the development, production/creation/publishing,
marketing and/or exploitation of a cultural product,
copyright/ownership/rights, contractual relationship with content
owners; - (iv) is capable of generating revenue, solicits advertising,
and earns a percentage of revenues/profits from the sale of
physical cultural products; or - (v) is eligible for funding from Canadian Heritage or one of
its portfolio agencies.
Canadian Heritage typically does not consider a business
activity to be “culturally significant” where it is
ultimately not commercially available to Canadians. When in doubt,
Canadian Heritage assumes that a business is culturally
significant. Further, Canadian Heritage takes the view that as
industry models change and adapt, its interpretation of what is a
cultural product or business needs to evolve as well.
Returning to the topic of video games, it bears noting that they
were not always considered cultural, and the definition of
“cultural business” in the Investment Canada
Act does not expressly reference video games. Canadian
Heritage relies on the words “film or video products”
and “audio or video music recordings” as encompassing
video games. While the inclusion of video games may not quite fit
into a strict reading of the definition of “cultural
business”, Canadian Heritage has taken the view that video
games generally are cultural, absent compelling reasons to the
contrary (e.g. lack of a video component), due to
the reliance on creative talent, among other reasons.
It is possible that Canadian Heritage may consider updating its
foreign investment policies for cultural industries
(i.e.
book publishing, distribution and retail,
magazine publishing, and
film and video distribution) in the near future.
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