Within the ITB framework there are opportunities for prime contractors to maximize their ITB credits. For certain types of transactions, multipliers are awarded. Multipliers are awarded based on the type of transaction and allow prime contractors to claim the transaction amount times the multiplier that the transaction activity is eligible for.
For instance, if a company spends $500, 000 on a transaction that is eligible for a 5x multiplier, they are able to claim $2,500,000 towards their ITB obligation.
ITB multipliers place an emphasis on R&D and incentivize contractors to spend on transactions in areas that will have a larger impact on the Canadian economy. They are also incredibly important to a prime contractor or eligible party because they help the prime maximize spending to achieve 100% of its ITB commitment, often making up for areas where the prime has had transactions with a lower Canadian Content Value (where they would have received less than 100% ITB credit for the amount that they spent).
The transaction types that are eligible for points multipliers are:
Post-Secondary and Public Research Institution Transactions: This type of transaction involves cash contributions to post secondary institutions for research or research chairs, investments into advanced technology skills development at these institutions and research undertaken with public research institutions. Examples of this type of transaction could include investments into a Canadian college or university or the National Research Council (NRC). A post secondary and public research institution transaction is eligible for a 5x multiplier.
Consortium Transactions: A consortium is made up of a prime contractor with an ITB obligation, a Canadian SME and a Canadian publicly funded research institute. An example of a consortium transaction is a prime contractor providing funds to a Canadian SME in partnership with a Canadian college or university to support R&D for a certain technology. A prime contractor can receive a 5x multiplier for putting together this type of R&D relationship in a transaction.
Investment Framework (IF) Transactions: An investment framework is an investment made by a prime contractor with an ITB obligation to a Canadian SME for R&D efforts, commercialization or equipment. This type of investment does not claim any ownership in the Canadian SME, it is purely for the purpose of fulfilling the prime’s offset obligation. IF transactions must meet the ITB eligibility criteria (read our articles onincrementality, causality, and eligible parties), have a minimum duration of five years, and have an accompanying business plan that outlines the description of the activity, the value of the activity to the SME and estimated impact, and certification and signatures for the accuracy of the information presented. The multiplier to be applied on this type of transaction varies based on the end use or purpose of the investment money. For instance, if the transaction is to allow the SME to engage in R&D efforts or license IP, the multiplier is 9x, if it is for cash to purchase, or an in-kind transfer for equipment it is 7x, and if it is an in-kind transfer for commercialization/marketing/sales it is 4x. Investment Frameworks are eligible to equal up to 25% of the contract value and can be submitted as part of the Value Proposition prior to contract award, following contract award, or as a banked transaction.
Venture Capital Fund (VCF) Transactions: A venture capital fund transaction occurs when a prime contractor or eligible party with an obligation provides funding to a venture capital firm for investment into a Canadian SME for the development, manufacture or commercialization of an advanced technology. A VCF transaction similar to an IF transaction; however, the investment into the SME is managed by a third party (the venture capital firm). Initial investments into the Canadian SME must not exceed $1,000,000, the company must be privately held with less than 50 employees if the company provides a service, or less than 100 employees if the company is manufacturing based. In the instance that the SME releases an initial public offering (IPO), the transaction will no longer be eligible for further ITB credit. Venture Capital Fund Investments are eligible for a 5x multiplier.
The bigger picture: why do ITB multipliers matter to your company?
As a Canadian SME, you can help prime contractors maximize their spending to gain the most credit towards their ITB commitment. Thus, you should start marketing yourself in a way that shows why your company would make a good ITB recipient and how you can help maximize these transaction dollars. You can do this by showing how you meet a required capability, the types of R&D transactions you would be interested in working on, and the impact that a certain type of transaction would have on your company (ie. how you would plan to expand or what you would develop and how that could benefit your company, the prime contractor, and the Canadian industrial base as a whole).