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Updated Guidance on Forced Labour: New Guidance, Same Confusion

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With May 31st deadline quickly approaching for Canada’s first mandatory Annual Reports on Forced Labour, many in the Oil, Gas & Petrochem sector may have missed these requirements completely!

Making matters worse, Public Safety Canada’s recently released updated guidance (the “New Guidance”) on Canada’s Fighting Against Forced Labour and Child Labour in Supply Chains Act (the “FCLA”) leaves a number of “scope” questions unanswered.

“Having Assets”

Significantly for the Oil, Gas & Petrochem sector, the New Guidance clarifies that “assets” are “any property” owned by a person or business, including money, land, buildings, investments, inventory, vehicles and intangibles like goodwill.

Unanswered is whether that necessarily means that momentary ownership of goods being delivered or trans-shipped in Canada counts as “having assets”?   (Think of those barges of gasoline or oil or blendstock or other petro-chemical products being bought and sold at Canadian ports or while the ships are sailing up or down Canadian waterways, “in Canada”.)  It seems that these activities, even if momentary, would be “having assets” in Canada, and a basis for Canadian Nexus under these new Reporting Rules, with only the Size Test remaining as a possible “out” – good luck with that!).  In the Oil, Gas & Petrochem sector, one will likely find that the legal entities making those trades are technically required to report!

And what about owning intellectual property being used and/or licensed in Canada (think “Coca Cola”, or “Aspirin”).  Is that “having assets”?   (Maybe not, but who really knows?)

Guidance on “Control”

The New Guidance also emphasizes that the meaning of “control” will include both direct and indirect control situations – also potentially broadening out the application of these rules.  Accounting standards like Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) may help assess “control”, but that determination is not restricted to these standards.

The New Guidance’s note on substance over form also raises a few new questions.  For example, should an organization adhering to GAAP consider “substance over form” or “de facto control”?

Guidance on “Consolidated” Financial Statements

The New Guidance is also helpful as to the meaning of “consolidated financial statements”, confirming that an entity should include the revenue, assets, and employees of any subsidiary it controls, but exclude revenue, assets and employees of parent and grandparent companies up the control chain.

Takeaways

Despite obvious efforts to clarify, Public Safety Canada’s New Guidance fails to address some very common situations including those raised previouslyby us.

The FCLA’s broad language and public-policy purpose (addressing forced and child labour) suggests an extremely wide potential application, meaning that any doubt in these areas will need to be resolve by providing Annual Reports.  All the while, the May 31, 2024 deadline for those Annual Reports continues to rapidly approach.

Read the full text of the FCLA here.

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