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Why Functional Analysis Matters?

Functional analysis provides the foundation for aligning profits with substance. It clarifies who performs critical activities and assumes key risks, enabling fair and defendable profit attribution. This transparency reduces audit challenges and supports compliance with OECD transfer pricing standards.

Functional Analysis For CFOs

For CFOs, functional analysis links operations to financial outcomes. It helps identify where real value is generated and ensures that transfer pricing policies reflect that reality. This clarity strengthens internal decision-making, risk management, and cross-border financial control.

Functional Analysis For Tax Managers

For Tax Managers, functional analysis guides transfer pricing design and documentation. By mapping activities and risks, they can select the most appropriate pricing method and justify profit splits. It forms the backbone of compliant local and master files.

For CEOs, functional analysis demonstrates operational integrity and accountability. It assures stakeholders that the organization’s structure reflects actual decision-making and value creation, supporting long-term scalability and reputational trust.

Functional Analysis For CEOs

Functional Analysis OECD Guidelines Reference

In accordance with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, Function, Assets and Risk (‘FAR’) Analysis is defined as an analysis of the functions performed (taking into account the assets involved and the risks assumed) by associated (related) enterprises in controlled transactions and by independent enterprises in comparable uncontrolled transactions.

Common Functional Analysis Mistakes

Functional analysis errors usually arise from incomplete mapping or poor coordination between departments. These issues lead to misaligned profit attribution and audit risk.

Overlooking Key Functions or Risks

Failing to identify who performs or manages crucial activities—like product development, marketing, or IP protection—creates gaps between substance and documentation. Comprehensive mapping of every value-driving function ensures that returns match actual contributions.

Generic Descriptions of Activities

Failing to identify who performs or manages crucial activities—like product development, marketing, or IP protection—creates gaps between substance and documentation. Comprehensive mapping of every value-driving function ensures that returns match actual contributions.

Failing to identify who performs or manages crucial activities—like product development, marketing, or IP protection—creates gaps between substance and documentation. Comprehensive mapping of every value-driving function ensures that returns match actual contributions.

Lack of Collaboration Across Teams

Failing to identify who performs or manages crucial activities—like product development, marketing, or IP protection—creates gaps between substance and documentation. Comprehensive mapping of every value-driving function ensures that returns match actual contributions.

Failure to Refresh After Changes

Ignoring DEMPE Function Integration

Excluding DEMPE activities—Development, Enhancement, Maintenance, Protection, and Exploitation of intangibles—undermines accuracy. These functions are key to identifying where value is created. Integrating DEMPE analysis ensures profits match substance and support OECD compliance in IP-rich models.

Failing to identify who truly controls and manages risk can distort profit allocation. The OECD requires that risk be attributed to entities capable of managing and bearing it. Proper documentation of decision rights ensures that profits follow the entity exercising real control and authority.

Underestimating Risk Control and Decision Rights