The glossary to understand and take action

Functional analysis

An examination of the activities, resources and risks of the parties to a transaction, in particular to prepare a transfer pricing analysis.

Notion comptable, fiscale ou juridique · Luxembourg Fiduciaries Editorial Team · Reviewed on

Understand the scope

Definition and points to distinguish

It describes what each entity actually does, who makes decisions and who bears the economic consequences. The contract, invoices and organisation must be compared. This analysis prepares the selection of the pricing method; it does not by itself set a margin or rate valid for all groups.

In your file

What this changes in practice

Functional analysis describes the functions, assets and risks of the parties to a transaction, in particular for transfer pricing purposes. It must reflect the actual facts and decisions, not merely the contracts. It helps to understand each entity's contribution and choose a consistent method. Identical descriptions for all companies in a group make the analysis uninformative.

A scenario to help you understand

Educational example

A group distinguishes the entity that develops a product, the one that finances the project and the one that sells it, documenting each entity's resources and risks.

Fictitious situation, presented to illustrate the concept.

Prepare for what comes next

Points to check

  • Décrire les fonctions réellement exercées
  • Identifier les actifs et risques
  • Rapprocher contrats et pratiques

The practical question

Find out more

Comment distinguer un risque contractuel d’un risque réellement assumé ?

Le contrat décrit une répartition, mais il faut examiner qui prend les décisions, dispose des moyens et supporte effectivement les conséquences. Une entité désignée sur le papier peut ne pas contrôler le risque en pratique. L’analyse fonctionnelle rapproche donc documents et fonctionnement réel pour soutenir une rémunération cohérente des différentes parties.

Connecting concepts

Terms to know as well

Continue with the concepts, contacts and procedures related to this topic.

Transfer pricingTransfer pricing concerns the terms of transactions between related companies and their assessment under the arm's length principle.Economic substanceEconomic substance refers to the actual elements of organisation, resources and decision-making assessed in the analysis of an activity or structure.Intellectual property licenceA licence authorises the use of intellectual property rights under agreed terms, without necessarily involving their transfer.Financial forecastThe financial forecast translates the project's assumptions into expected results, cash flows and financing needs.

Put it into practice

Explore further with our guides

Practical guideTransfer pricing: documenting intra-group transactionsPractical guideIntra-group financing: documenting loans and interest

Sources and verification

References consulted on 20 September 2026. Official procedures specify the applicable conditions and exceptions.

This guide explains a general process. The applicable rules depend on your situation; it does not constitute personalised advice. Report a correction.

A definition gives you a reference point. To examine your situation, clarify your question with a professional.