ETP (External Transfer Pricing): The Inbound Investment Pricing
ETP defined: the transfer pricing of the inbound investment — the share purchase, the technology, the capital contribution and the post-investment transactions, priced for the entering investor.
Definition
ETP — External Transfer Pricing — is the transfer pricing of the inbound investment: the pricing of the transaction by which the foreign investor enters the Indian company. The “external” is the direction — the ordinary s.92 examination looks at the ongoing intra-group transactions of the Indian entity; the ETP examination looks at the pricing of the entry itself (the share purchase, the technology brought in, the capital contribution, the management arrangement that follows) and of the post-investment transactions that flow from it. The investor is the party whose pricing is in question — and the investor’s documentation is the investor’s defence.
| The ETP fact pattern | The pricing question |
|---|---|
| The share purchase (the investor buys the Indian entity’s equity) | The equity’s value — the earnings power, the assets, the intangibles in the entity — priced at the entry |
| The technology / intangible contribution (the investor brings the technology, the brand, the customer relationships into the India business) | The intangible’s value at the contribution — the DEMPE basis, the contribution’s pricing, the ownership that follows |
| The capital contribution (the funding of the India operation) | The capital’s pricing (where priced — the thin-cap position, the interest where the funding is the loan) |
| The post-investment transactions (the management fee, the supply, the loan from the investor to the Indian entity) | The ordinary s.92 examination — the ongoing intra-group transactions priced at arm’s length from the entry |
The working distinction (the ETP guide): the ETP question is the entry’s price — is the value the investor paid / contributed / brought the value an unrelated party would have paid / contributed / brought, on the same facts — and it is asked from the investor’s side, where the ordinary s.92 examination is asked from the Indian entity’s side. The documentation the investor maintains (the valuation, the contribution’s basis, the post-investment pricing policy) is the file that answers the question — contemporaneous with the entry, not reconstructed at the first examination.
Example
A US parent acquires 75% of an Indian trading company at a price reflecting the company’s earnings power and the customer relationships it holds. Two years later the US parent contributes the group’s distribution technology to the Indian company (for the Indian market) and charges the Indian company a management fee for the group’s shared services. The ETP questions: the acquisition price (the equity’s value at the entry — the valuation on the documented basis), the technology contribution (the intangible’s value, the DEMPE allocation, the royalty or the one-time consideration), and the management fee (the ordinary s.92 examination — the safe harbour or the benchmark). The investor’s file covers all three, from the entry.
See also
- ETP: Inbound Investors’ Playbook (the guide)
- Intangibles TP: Licensing, Royalties, DEMPE
- Group Restructuring TP
FAQ
Is ETP a separate legal regime in India? No — ETP is the lens on the entry transactions, examined under the same s.92 arm’s length standard (and the same documentation discipline). What is distinct is the direction: the pricing in question is the investor’s entry and the post-investment flows, and the defence is the investor’s documentation, maintained from the entry.
How does ETP interact with the ordinary s.92 examination? Sequentially, on the same facts: the entry’s pricing (the ETP question) sets the starting position — the value in the Indian entity, the intangibles it holds, the related party structure — and the post-investment transactions are examined against that position under the ordinary rules. An entry priced on the thin documentation shows up in every subsequent year’s file, which is why the entry’s documentation is built as the file, not the memo.
Who prepares the ETP documentation — the investor or the Indian entity? The investor — it is the investor’s pricing that is in question, and the documentation is the investor’s defence. The Indian entity’s Local File references the entry (the related party structure, the intangibles) as its context; the entry’s own pricing file is the investor’s, maintained contemporaneously with the investment.
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Related docs
External Transfer Pricing (ETP): Inbound Investors’ Playbook
ETP from the investor’s side: pricing the inbound investment — the share purchase, the technology, the capital — the TPO’s examination of the Indian position, and the investor’s documentation.
Read docIntangibles TP: Licensing, Royalties, DEMPE and HTVI
The transfer pricing of intangibles: the royalty benchmark problem, DEMPE allocation, cost sharing, hard-to-value intangibles, and the Indian practice on royalties.
Read doc