BDO Malta's Knowledge Digest: November 2024 issue
Welcome to BDO Malta's Knowledge Digest Newsletter! We are pleased to share the latest insights and expert analyses on a wide range of topics that matter to you. From technology advancements and advisory services to tax updates, EU regulatory issues, and current market trends, our newsletter provides you with the insights you need to stay informed.
1. Understanding DORA Compliance: The Legal Entity Identifier (LEI) Requirement for Financial Entities
As the digital landscape evolves, the financial sector faces increasing regulatory requirements to strengthen its digital resilience.?In particular, the Digital Operational Resilience Act (DORA), established under Regulation (EU) 2022/2554 and with applicability from January 17, 2025 introduces comprehensive measures aimed at enhancing the digital resilience of financial entities in the European Union.
A critical aspect of this regulation is the Legal Entity Identifier (LEI) requirement for maintaining a standardised Register of Information (RoI) on ICT-related third-party service arrangements.
2. Transfer Pricing: What is a local file?
In Transfer pricing, a local file is meant to provide detailed information with respect to transactions entered into between the entity and its related entities within the MNE group.?
Typically, Chapter V of OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations serves as the template (soft law) for the local file requirements in many jurisdictions. However, many jurisdictions have their specific requirements and variances that MNEs would need to abide by (hard law).? The local file provides the tax authorities with the information they need to assess the risk areas, the group’s approach to transfer pricing and where potential non arm’s length pricing may be taking place, thus enabling the tax authorities to focus their efforts on the higher risk entities and transactions.?
3. ESG, Risk Management & the net-zero wave
Non-financial corporates face a perilous path if they do not follow suit and start the process of risk analysis and development of subsequent external reporting, as regulations and disclosure guidelines for sustainability, ESG, and climate change are evolving quickly for financial institutions.?
Institutions worldwide have been under intense pressure in recent years to dramatically increase their overall sustainability and Environmental, Social, and Governance (ESG) activities, with a particular focus on climate risk. This pressure has come from governments, regulators, and customers. The climate change hazards that make up the "E" in ESG are undoubtedly the thing giving financial institutes the most issues. Customers and investors are receiving the corresponding criteria and expectations from companies as they formalize their ESG and climate risk processes. Authorities are increasingly focusing on non-financial corporates in order to facilitate the shift to a sustainable economy.
4. Shareholder Dynamics: Navigating Rights, Responsibilities, and Corporate Governance
Shareholders are fundamental to shaping the strategic direction of companies. As part owners, they not only contribute capital but also play a vital role in ensuring that corporate governance mechanisms are effective and aligned with the company’s long-term objectives.
Their engagement and oversight responsibilities have been evolving, especially in the modern context where shareholder activism and corporate accountability are becoming increasingly significant.? Shareholders possess distinct rights and responsibilities that empower them to influence major company decisions, such as electing the board of directors or approving significant transactions. These rights are often shaped by the type of shares they hold, shareholders’ agreements, and the company’s internal rules. More importantly, shareholders are tasked with ensuring their decisions promote sustainability and growth, balancing immediate returns with long-term value.?
5. IFRS Accounting Standards In Practice - IFRS 18 Presentation and Disclosure in Financial Statements
BDO has released IFRS Accounting Standards In Practice - IFRS 18 Presentation and Disclosure in Financial Statements (Presentation in the Statement of Profit or Loss).
This publication is an in depth and comprehensive guide to the requirements of IFRS 18 applicable to the preparation of the statement of profit or loss and includes dozens of flowcharts, examples and practical insights about how IFRS 18 will affect entities that apply IFRS Accounting Standards.? IFRS 18 is mandatorily effective for annual reporting periods beginning on or after 1 January 2027 (i.e. 31 December?2027 annual financial statements for entities with calendar year-ends), subject to any relevant jurisdictional?endorsement. Earlier application is permitted.? The issuance of IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers, IFRS 16 Leases, and IFRS?17 Insurance Contracts fundamentally changed the measurement requirements of IFRS Accounting Standards for many?transactions entities commonly enter into, and IFRS 18 is expected to have a similarly significant effect on how entities?present their financial statements.