Section 442
Section 442: penalty for transfer pricing documentation failures
Section 442 backs up the transfer pricing documentation requirements in Sections 171-172 with a penalty - a business that doesn't keep the required records, or misreports its international or specified domestic transactions, faces a penalty tied to the value of the transaction itself.
What triggers the penalty
The Assessing Officer or Commissioner (Appeals) may impose a penalty of 2% of the value of each international transaction or specified domestic transaction entered into by a person, if in respect of that transaction the person fails to keep and maintain the prescribed information and documents, fails to report the transaction accurately, or furnishes incorrect information or documents.
Why the penalty is transaction-value-based
Unlike many penalties in this Chapter which are flat amounts or per-day fees, this one scales with the size of the transaction - since transfer pricing non-compliance risk (and potential tax leakage) scales with transaction value, particularly for large intra-group dealings between associated enterprises.
Frequently asked questions
How is the Section 442 penalty calculated?
As 2% of the value of each international transaction or specified domestic transaction affected by the documentation/reporting failure - not a flat fee.
What kind of failure triggers this penalty?
Failing to keep and maintain the prescribed transfer pricing information and documents, failing to report a transaction accurately, or furnishing incorrect information or documents about it.
Related sections
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Get help with transfer pricing documentation complianceLast updated 9 September 2026