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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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Canada | Publication | March 11, 2024
The federal government has updated the guidance it published on December 20 on Canada’s new modern slavery legislation. Some of the updates put in writing what was stated during the webinar held in January by Public Safety Canada, or otherwise provide clarification. The intent and impact of other changes are more difficult to interpret.
Canada’s new modern slavery legislation, the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the Act), came into force on January 1, 2024. The federal government first published guidance on the Act’s requirements on December 20, 2023. See here and here for more information about the legislative requirements and earlier guidance.
On March 7, 2024, the federal government published amended guidance, together with a series of FAQs. The updates relate primarily to formatting and filing considerations, as well as to understanding which entities are required to file a report.
A number of the changes to the federal government’s guidance relate to the basic question of which organizations have reporting obligations under the Act. To be required to submit a report, a corporation, trust, partnership or other unincorporated organization must: (1) meet the connection-to-Canada and financial threshold tests within the definition of “entity” in section 2 of the Act; and (2) produce, sell or distribute goods in Canada or elsewhere or import goods into Canada, or control an entity that does any of the foregoing, all in accordance with section 9 of the Act.
Two-Part Test for Determining “Reporting Entity” Status
Part one: connection-to-Canada and financial thresholds
Part two: producing, selling, distributing or importing
The amendments to the guidance that are more difficult to interpret relate to the second part of the test of a “reporting entity.” As stated above, section 9 of the Act provides that any entity producing, selling or distributing goods in Canada or elsewhere or importing goods into Canada, as well any entity controlling an entity that does one of the foregoing, has reporting obligations under the Act. The production of goods includes manufacturing, growing, extracting and processing goods.
However, where the guidance used to repeat the wording of the section 9 test and state that the Act applies to entities producing, selling, distributing or importing goods, it now states that reporting requirements apply to entities producing or importing goods – references to selling and distributing goods have been removed. The implication of this is that the Act does not apply to entities that sell and distribute goods unless they also either produce or import goods.
Notwithstanding the amended guidance, the wording in section 9 of the Act remains unchanged, as does the government’s questionnaire, which includes a question about whether the entity produces, sells, distributes and/or imports goods.
Moreover, the government has not stated it is intending to amend section 9 of the Act or that the intent of its amended guidance is to change the test for a reporting entity from what is otherwise clearly set out in section 9. Accordingly, the intent and effect of the amended guidance are unclear. It is possible that the government was only intending to clarify the meaning of “producing” and “importing,” and therefore removed the references to “selling” and “distributing” because it was not providing guidance on those terms.
Without a clear statement from the government as to the intent of its revised guidance, we believe there is risk in taking the position that the Act only applies to entities that produce or import goods.
Confirmatory / Clarification Updates Regarding Applicability
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