Functional Analysis

Value Contribution

Teams examine who designs the products, who manages the inventory and who bears the risk of credit default in the supply chain. The functional analysis maps these tasks against the people performing them to determine the fair distribution of income. It prevents a scenario where a high-profit center is placed in a low-tax area without having any actual employees or operations there.

Benchmarking Activity

Data from the review is compared against independent entities that perform similar duties in the open market. Once the functional analysis is complete, it supports the selection of the correct transfer pricing method, such as the cost-plus or the transactional net margin approach. This evidence protects the company from large tax adjustments during audits by showing that its internal pricing follows realistic market behavior.

Comparability Standard

Documentation remains a mandatory part of the master file or local file under SAT Public Announcement 2016 No 42. Accuracy here depends on the update frequency as the analysis stops being valid if the factory shifts from contract manufacturing to fully independent distribution. Every major organizational shift requires a new survey of the functions to ensure compliance with global transparency standards.