Commercial

In a previous Bulletin, the authors broadly outlined the legal framework that applies to export controls, as well as the challenges surrounding large language models in artificial intelligence in an era of knowledge sharing. Given that a number of legal and geopolitical developments covering various aspects of this topic took place in 2025, a brief overview is timely on the potential implications for the development of your AI projects, with a special mention of generative AI (or “GenAI”), as the new year begins. What are export controls? Export controls establish rules designed to curb the risk of transferring military, strategic and dual-use (civilian and military) goods and technologies to destinations deemed contrary to national security interests. Such technologies can take on various forms, ranging from physical hardware to technical information. In Canada, export controls are based on a licensing system, under which permits are given based on a series of items listed on the Export Control List (“ECL”) under the Export and Import Permits Act (“EIPA”). To find out if parts of your AI projects are subject to export controls, you should primarily (but not exclusively) refer to that list and to the guide prepared to better understand the list. Key events in 2025 Order SOR/2025-89  On March 7, 2025, an Order amending the ECL was published in the Canada Gazette, in an effort to include emerging technologies that are increasingly faster and more scalable, the capabilities of which raise concerns about potential adversarial military applications.1 Of particular interest in this context, subitem 5506(1) of the schedule to the ECL has been replaced by a number of paragraphs and subparagraphs. But what do these changes mean for AI projects in practice? The amendments made to subitem 5506(1) do not target AI applications (algorithms, models, data), but rather: extreme ultraviolet (“EUV”) lithography equipment, namely EUV masks and reticles making it possible to use this technology to manufacture advanced integrated circuits; cryogenic cooling equipment and ultra-sensitive amplifiers for quantum computers; advanced semiconductor materials; development and production softwares related to certain of the foregoing technologies.2 In other words, subitem 5506(1) targets the industrial toolbox used to build advanced computers, in particular through its inclusion of EUV lithography, which is used for cutting-edge integrated circuits and quantum computers that are revolutionizing the world of advanced computing. It can therefore be said that these rules affect the AI industry because of a form of hardware dependence, since tight control over these infrastructure manufacturing technologies necessarily affect the ability of a country or company to develop and operate advanced AI. In sum, these latest amendments are simply the continuation of those made in the previous year’s Order, which targeted the fields of quantum computing and advanced semiconductor manufacturing in particular (GAAFETs, representing next-generation integrated circuits).3 It has yet to be ascertained how the aforementioned orders will directly affect typical GenAI projects (model development, AI SaaS services, etc.). Those who will experience the more direct repercussions are suppliers of advanced computing equipment and businesses doing R&D on semiconductors, integrated circuits and quantum computing. Notice to Exporters No. 1159 Apart from the technical components, a certain complexity arises when we understand that the definition of a “technology” subject to export controls within the meaning of the law is meant to be broad, and that it includes technical data, technical assistance and information necessary for the development, production or use of an item appearing on the ECL. In other words, the scope of the technologies concerned goes beyond simple physical components or equipment. This is especially true given the proliferation of often cross-border cloud-based solutions, which make technical knowledge accessible digitally and circulate it far and wide. Given this context, it is appropriate to read the Guidance on the movement to and storage of controlled technology in the Cloud (Notice to Exporters No. 1159), published in November 2025 by the Government of Canada. The document was prepared to clarify instances when the use of cloud services constitutes a transfer of controlled technology under the EIPA, requiring a permit.4 In summary, the guidelines state that: it may be considered a transfer if a controlled technology is disclosed from a place inside Canada to a place outside Canada; a controlled technology is considered disclosed if it is sent from Canada and stored in a foreign location in a way that creates a reasonable possibility that a person located outside Canada would be in a position to examine that technology; a reasonable possibility means more than a mere possibility, but less than the standard of “more likely than not”; the location of servers hosting controlled technology only matters if it affects the reasonable possibility that the technology could be disclosed outside Canada; in general, it is considered a transfer when a person located outside Canada holds decryption keys or routine access rights that create more than a remote possibility that the technology may be examined, or when a cloud service provider creates an unencrypted backup copy that contains controlled technology to restore a system after an incident, and that such copy is stored on servers outside Canada where foreign administrators can access it; when cloud services are used, both the owner of the controlled technology and the cloud service provider have a degree of care and control of the technology. Thus, not only is there a risk of knowledge sharing where items directly listed on the ECL are involved (whether to manufacture them or otherwise), but the possibility of violating export controls also exists because of the interaction between cloud services and the knowledge that could be transferred (within the meaning set out above), if the cloud contains information about or relates to a controlled technology. Considerations regarding GenAI What about GenAI projects? Despite all of the above, these projects may still suffer indirect repercussions, and not only on highly technical components. You will need to exercise a certain degree of caution regarding the compliance of your GenAI projects because of the amount of information they can accumulate through the various layers of their structure. Training data There are the data used during the GenAI’s learning phase, before it is rolled out. The amount of this data can be massive, and it can be structured or unstructured. It is used to provide a knowledge base for the model and enable it to produce relevant outputs when it is given inputs. The learning phase is risky if the datasets contain controlled technical information and if the data can be regurgitated or combined when users use the GenAI. The GenAI’s weights, filters, and other operating parameters These parameters can be compared to physical control buttons—they are adjusted during the GenAI’s training and during the configuration of the solution that uses it. They determine how much each input element will influence the response and refine the model (i.e., the structure that allows the GenAI to interpret inputs and generate outputs). In the United States, weights in particular are a hot topic considering the country’s export policy, under which they can constitute key parameters for the most advanced AI models. Inputs This is the data provided by users to generate relevant outputs (e.g., text, images, structured data) when the GenAI is already rolled out. Such data is used to trigger a response or behaviour from the model. Just like with training data, inputs will be critical depending on the use made of the model and the information disclosed to obtain a response. Conditions consistent with legal requirements must be provided to prevent the model from being contaminated by sensitive data after it is rolled out, especially if it stores all the inputs provided to it for its continued learning. Outputs This is what GenAI generates in response to inputs. Outputs can be in the form of text responses or images, codes, or even data-based predictions. Given the above, it will be challenging depending on the datasets conveyed by the GenAI, to ensure that outputs do not violate export controls, as they could make it possible to indirectly obtain information the direct access to which would otherwise be prohibited. Conclusion We can imagine that the recent changes to export controls in Canada are just the beginning of an effort to address new concerns arising from this rapidly changing and ever more powerful technology. Export controls are also not devoid of a diplomatic context. For now, making AI subject to export controls seems to be the preferred mechanism to curb the exponential powers of such technology in Canada. The extent to which this will be done remains to be seen and will be interesting to follow. Government of Canada, Order Amending the Export Control List: SOR/2025-89 (March 7, 2025): Canada Gazette, Part II, Volume 159, Number 7: Order Amending the Export Control List: This is not an exhaustive list, but rather a few relevant examples that apply to advanced computing. Government of Canada, Order Amending the Export Control List: SOR/2024-112 (May 31, 2024): Canada Gazette, Part II, Volume 158, Number 13: Order Amending the Export Control List: Government of Canada, Notice to Exporters No. 1159 – Guidance on the movement to and storage of controlled technology in the Cloud (amended November 10, 2025): Notice to exporters no 1159 – Guidance on the movement to and storage of controlled technology in the Cloud

At the event, Mr. Martel will review and comment on important or interesting judicial decisions rendered in Canada and the U.S. during the second half of 2025. When: March 11, 2026 Speaker: Paul Martel He will be looking at decisions in areas such as arrangements, shareholders' meetings, shareholder agreements, oppression remedies and director liability.The presentation will be given in French. Register to the webinar

This article is part of our two-part series on what foreign buyers of, and investors in, business ventures need to know about the Charter of the French language (the “Charter”) in the context of a business transaction involving operations and employees in Quebec. The first instalment focused on French language issues during the due diligence process. Reference is made to the following hyperlink for access to part one. Continuing our exploration of the Charter in the context of merger and acquisition transactions, this part two focuses on the importance of language compliance during and after the deal-making process, from incorporating language obligations into representations and warranties to post-closing strategies for addressing compliance issues. 6. In the Deal-Making Process: Your Closing Documents Representations and warranties in transaction documents shall generally address language-related matters. For example, the target corporation may be required to represent and warrant that it has fulfilled its language obligations as imposed by the Charter. As a foreign buyer/investor, you may want to ensure that findings from the due diligence investigation are incorporated into the representations and warranties of your share or asset purchase agreement. As you prepare your closing agenda, it is of utmost importance to assess whether the principal and accessory agreements themselves will be subject to French language requirements. For example, it will be advisable to translate into French restrictive covenant agreements or intellectual property assignment agreements that will be applicable to Quebec-based employees or other agreements that may be deemed contracts of adhesion. The requirement to translate any agreement or documents following the results of the due diligence analysis can be included as a closing deliverable in a form satisfactory to the foreign buyer/investor. 7. Post-Closing: Addressing Language Compliance Beyond the Deal Obviously, not all aspects of French language compliance under the Charter will be addressed during the merger and acquisition transaction itself. Potential areas of non-compliance noted during the due diligence stage can give dealmakers a roadmap of steps to undertake after closing to mitigate risks. In recent transactions, there has been a growing need for law firms to provide post-closing support in French language matters. If a purchase price adjustment clause is included in the share or asset purchase agreement, a buyer/investor could benefit from using the costs associated with rectifying any translation defaults as a lever for the negotiation of the price to be paid. This could also include any penalties imposed by the OQLF on the target corporation. Recent amendments to the Charter have significantly increased the fines that a corporation may face for non-compliance with an order issued by the OQLF, which range from $3,000 to $30,000. These fines are doubled for a second offence and tripled for subsequent offences. If an offence persists for more than one day, it is considered a separate offence for each day it continues. Additionally, directors of the corporation are presumed to have committed the offence unless they can demonstrate that they exercised due diligence by taking all necessary precautions to prevent the offence. In cases of complaints, our experience indicates that the OQLF tends to prioritize achieving compliance rather than imposing fines when companies are responsive to complaints. This presents a positive outlook for foreign buyers/investors, as it underscores that the intent of the new Charter and its enforcement provisions is not to penalize foreign buyers/investors, but rather to reaffirm the status of the French language as the official language of work and business in Quebec. Conclusion Prospective foreign buyers/investors may question the wisdom of doing business in Quebec, given its Charterrequirements. However, achieving Charter compliance can provide a distinct competitive edge. By embracing it, you open doors to the predominantly French-speaking market in and outside Quebec, unlock opportunities in thriving sectors like mining, renewable energy and aerospace, and pave the way for lucrative partnerships with the Quebec government. However, considerations relating to the French language shall not be overlooked when it comes to due diligence or other phases of a merger and acquisition transaction as compliance is key to accessing the thriving Quebec market. Moreover, failing to address these aspects could result in various challenges to a buyer/investor’s entry into the market, such as the unenforceability of restrictive covenant agreements with key employees, potential fines, penalties and director liability. A reputational risk can also be associated with non-compliance with the Charter, in light of the media attention that surrounds this type of issue in the Quebec landscape. By adhering to the requirements of the Charter, foreign buyers/investors can position themselves as responsible corporate citizens and set the stage for successful ventures in Quebec's dynamic business landscape. As more guidance becomes available regarding the application of the new provisions of the Charter, and as we gain practical experience from upcoming transactions with foreign investor/buyers, additional instalments to this series will be published.

As part of the Quebec budget for 2025, the provincial government has announced a host of new tax measures and changes to existing tax measures. This series of bulletins will provide an overview of three of these measures which introduce significant tax changes and will have a considerable impact on many Quebec businesses: the introduction of the CRIC, changes to the tax credit for the development of e-business (TCEB) and changes to the public utility tax (PUT). Research and development tax credits, such as the R&D tax credit for salaries and wages, the university research tax credit and the pre-competitive research tax credit, all have a very important place in Quebec’s tax and economic systems. They were designed to provide substantial tax support for businesses investing in research and development (R&D), while reducing the financial risks inherent to such activities. The new CRIC simplifies and centralizes these tax measures by grouping them under a single tax credit, making application for Quebec businesses more consistent and efficient. This new credit’s basic rate will be 20%, with an increased rate of 30% applicable to the first million dollars of eligible expenses. This structure is designed to be internationally competitive and help Quebec businesses maintain a significant tax advantage over their counterparts in other jurisdictions. To benefit from the credit, a business must carry out R&D or commercialization activities in Quebec and incur eligible expenses in the course of these activities. Eligible expenses include salaries directly linked to research, payments to subcontractors and research organizations and certain capital expenditures, save for those made to acquire real estate property such as land, buildings and rights of use over buildings. The real estate exclusion is intended to ensure that tax support is spent on technological innovation rather than real estate investments. The credit takes effect for all tax years ending after March 25, 2025. The tax credits for scientific research and experimental development, university research or public research centres, private partnership pre-competitive research, fees and dues paid to a research consortium, technological adaptation services and industrial design are all abolished, as they are now included in the new CRIC.