Canadian multi-level marketing lawCory Lewis, C.A.E., B.A., LL.B., LL.M., Barrister & Solicitor Canada is a federal state in which a federal government regulates some matters and the respective provincial and territorial governments regulate other matters. Consequently federal, provincial, and territorial statutes as well as court decisions apply to multi-level marketing plans, and their participants, operating within Canada. Canada's federal Competition Act regulates multi-level marketing plans in section 55 and defines a subset of them as schemes of pyramid selling in section 55.1. Consequences of operating a multi-level marketing plan in a way which violates the Competition Act multi-level marketing plan requirements or operating a multi-level marketing plan so that it includes any of the elements of a scheme of pyramid selling include either or both of fines and imprisonment. Generally the Competition Act's major restrictions on the operation of a multi-level marketing plan apply to the representations which may be made regarding compensation under the plan. Generally the Competition Act's prohibitions on schemes of pyramid selling apply to mulit-level marketing plans in which there are participation fees, purchase requirements as a condition of participation, inventory loading, or insufficient buy-back guarantees and lack of notice of the buyback guarantees. The Competition Act is enforced by Industry Canada. Industry Canada may examine what is in fact occurring, and where the factual evidence warrants, presume the presence of the prohibited scheme of pyramid selling elements. Canada's federal Criminal Code also contains a provision prohibiting pyramid schemes. The Canadian Criminal Code definition of a pyramid scheme differs from the Competition Act's definition of a scheme of pyramid selling. Each province regulates the operation of businesses within its own territory. Most provinces have legislation requiring corporations doing business within the province to register with the province. All provinces have legislation requiring the licensing of people and businesses engaged in direct sales to the consumer. Most provinces in most instances require a favorable opinion letter from Industry Canada before they will license a direct sales company to sell products within their territory. Canadian jurisdictions also have sales tax on purchases by consumers. The most commonly applicable tax rate is either the 7% federal Goods and Services Tax plus the 7% provincial Sales Tax or else the 14% Harmonized Tax. The difference depends upon in which jurisdiction the sale is made. There are exceptions to these tax rates for some services and products. Another taxation consideration relates to whether to create a Canadian presence as a subsidiary or as a branch of your existing company. One may have taxation advantages over the other. Many multi-level marketing companies considering doing business in Canada must choose between exporting from the United States to Canada and dealing with the import duties on each individual shipment and establishing a distribution point within Canada. Depending upon the company's product there may be import and other regulatory requirements which must be met before the product may be advertised, marketed, or sold within Canada. For example, food and drugs are regulated by Canada’s Food and Drugs Act. In many instances Canadian law requires packaging and labeling to include certain information in both of Canada’s official languages. Cory Lewis, C.A.E., B.A., LL.B., LL.M., Barrister and Solicitor, practices law with preferred areas of practice in multilevel marketing and direct selling law. He can be reached in Winnipeg, Manitoba, Canada.
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