Under temperature or pressure tuning, tetragonal �is known to undergo a valence transition from nearly divalent to nearly trivalent Eu accompanied by a volume reduction. Albeit intensive work, its microscopic origin is still being discussed. Here, we investigate the mechanism of the valence transition under volume compression by ab initio density functional theory (DFT) calculations. Our analysis of the electronic and magnetic properties of �when approaching the valence transition shows an enhanced hybridization between localized Eu states and itinerant conduction states (Eu , Pd , and Si ) where an electronic charge redistribution takes place. We observe that the change in the electronic structure is intimately related to the volume reduction where Eu-Pd(Si) bond lengths shorten and, for the transition to happen, we trace the delicate balance between electronic bandwidth, crystal field splitting, Coulomb repulsion, Hund's coupling and spin-orbit coupling. In a next step we compare and benchmark our DFT results to surface-sensitive photoemission data in which the mixed-valent properties of �are reflected in a simultaneous observation of divalent and trivalent signals from the Eu shell. The study serves as well to explore the limits of density functional theory and the choice of exchange correlation functionals to describe such a phenomenon as a valence transition.