The Electronic Retailing Association

Committee Bulletin: Public Affairs 2Q19

The ERA Public Affairs Committee discusses current national and European public affairs issues and defines ERA Europe's position on them.

Objective of ERA Europe governmental affairs work in 2019: fair level playing field with third-country webshops and fair regulation on eCommerce marketplaces and their share of liability

Ensuring a fair level playing field between our companies, all of them complying with the European regulation set on consumer protection, product quality and tax liability, and third-country companies shipping their products to the EU market, selling them often via marketplaces such as Amazon, but not complying with these conditions is one of the two most important policy goal for ERA Europe in 2019.

Regulation is lacking in the fields of digital taxation and customs duties (in particular payment of duties, processing flat rate fee on third country goods).

As these third-country e-commerce companies are taking advantage that marketplaces such as Amazon do not control compliances of these products with tax regulation or IP protection, new liability concepts applying to marketplaces are also required. ERA Europe shares the goal that marketplaces should be encompassed with the legal task of ensuring their environments are “clean” and “safe” for both customers and users. This in practice means removing rogue traders and correcting compliance issues swiftly as it benefits the entire ecosystem in terms of trust and the creation of a level-playing field.

As a consequence, ERA Europe has decided on the General Annual Meeting in Munich (January 2019) to set up a task force in assessing, updating and agreeing on next steps.

ERA Europe Public Policy Activities

ERA Europe is engaged in the following regulatory issues as agreed policy priority issues by the task force:

a) Position Paper to combat the e-commerce sales of counterfeit goods through online marketplaces - Shifting liability to the online marketplaces

ERA Europe has undertaken activities in communicating the members’ position to key stakeholders on national and EU level, in particular on the foremost important issue on combating the e-commerce sale of counterfeit goods through online marketplaces.

In 2016, imports of counterfeit and pirated products into the EU amounted to as much as EUR 121 billion (USD 134 billion), which represents up to 6.8% of EU imports, against 5% of EU imports in 2013. Legislative measures are required to combat these trends of counterfeit products being sold via online marketplaces. Until today the industry itself was not able or not willing to tackle these problems with industry agreed instruments such as the Memorandum of Understanding (MoU) or their seller programs. A comparison with the efforts of US policies underlines this conclusion. Due to intense policy pressure, in February 2019 Amazon introduced a new tool to tackle counterfeits on its platform – restricted to US market so far.

Our members are more and more affected by the sale of counterfeit goods via marketplaces as it undermines the product quality of the original products and as a consequence the selling opportunities via the licensed e-commerce shops of our members.

A common practice evolved as rogue sellers identify best-selling products, piggy back these listing with their own products. They add their own price and delivery options and provide Amazon with their (counterfeit) stock. The Amazon Buy Box list with a certain product the price, delivery options and ratings. With the low pricing the counterfeiters win this buy box as the listing usually list the cheapest product first. This happens notwithstanding the fact that many of these products have a very long delivery time.

As these are counterfeits, they do not keep the quality standards and kill the customer rating of a product in a short time frame. Even if the right owner can prove to Amazon that counterfeiters are selling the product on their platform, it takes too long to be taken down. Additionally new counterfeiters start their activities for that product. The product is ruined. This leads not only to a loss of sales with regards to that product but also ruins the overall reputation of the product owner. Final outcome is that the honest product owner and consumer are seriously harmed. Not only but also the market place, i.e. the intermediation service (Amazon/ Ebay…) earn a lot of money through the provisions paid out of this criminal act.

Therefore ERA Europe is urging the EU legislator to kick off regulation and policy activities in this field:

• Intellectual property (IP) protection has to be shifted to a comprehensive compliance system provided by the eco-system controlling the place, i.e. the online marketplaces such as Amazon & Co.

• Online marketplaces are liable to ensure that no counterfeits are sold on their platforms, a concept similar to the obligation introduced on clearing VAT (Directive 2017/2455) and by the Copyright Directive (2019/790).

• The online marketplaces are only exempted if, in accordance with high industry standards of professional diligence, they can prove best efforts to ensure the unavailability of counterfeits on their platforms, e.g. by using detection systems; by preventing technical counteroffers on their platform without the permission of right owners once an IP right is registered; or by providing a compliance system asking the seller for product certificates etc.

ERA Europe has published its position:.

Call for action to combat the e-commerce sales of counterfeit goods through online marketplaces: Shifting liability to the online marketplaces, July 2019

b) ERA Europe’s public policy panel on MCMS for pushing our policy messages

ERA Europe successfully launched a “regulation panel” on its MCMS conference in Budapest during the ERA conference. Dieter Schneider, (Mediashop Holding) Sabine Christmann (ERA Europe) and Budd Margolis (Retail Expert) discussed on the panel the topic “Future of Trade Platform – what is fair and balanced Regulation?”

Representing one of the biggest Homeshopping retailer, Dieter Schneider outlined the high economic impact that counterfeit sales have on the economic prospect of European companies, but also on the consumer welfare and income sources of the Member States. However, all participants agreed that ERA Europe is facing a positive momentum and timing to initiate regulation in this field – given the policy pressure in US and the new willingness of EU bodies to held platforms responsible, as proofed by the initiatives on VAT and copyright, both blueprints for the e-commerce liability.

c) Ensuring a level playing field between European eCommerce companies and third- country webshops, including a level playing field in the field of parcel delivery on national, EU and international level, including a fair price-based system for terminal dues enforcing compliance of third country webshops with VAT and custom duties

Chinese counterfeit traders are able to deliver products to the EU and other Western countries at a much lower price than domestic retailers – another benefiting issue in the increasing e-commerce sale of counterfeit products from outside.

These postal prices are determined internationally by the “Universal Postal Union”, UPU (UN specialized agency). Due to significant US & EU pressure, these fees are up to review in September 2019. The three options discussed were

(1) to allow member countries to self-declare postal rates;

(2) to accelerate the increase of the rates already previously approved by the UPU; and

(3) to allow for self-declared rates but to adopt elements that mitigate undue price impacts.

d) VAT Liability of Online Marketplaces in order to reduce VAT evasion from third country online sellers

In ensuring a level playing field regarding VAT, the European Commission paved the way by presenting two proposals, one for a Council Directive and one for an Implementing Regulation, clarifying the situations in which an online marketplace will be held liable for VAT. The new rules will apply as of 2021 and are expected to reduce VAT evasion from third country online sellers.

The proposals clarify the provisions of the eCommerce VAT package adopted in December 2017. They specify when online marketplaces are considered to have facilitated a sale between users and can therefore be held liable for missing VAT on these sales.

According to the proposed Implementing Regulation, the VAT liability would not apply to intermediaries if they (i) don’t set the general terms under which the supply of goods is made, (ii) are not involved in charging the customer or (iii) are not involved in the ordering and delivery of the goods. Moreover, economic operators who only provide the processing of payments, the listing or advertising of goods and the redirection of consumers to other platforms are exempted from VAT liability.

Furthermore, a marketplace cannot be held liable for the payment of VAT in excess of the VAT which it declared if the marketplace is dependent on information provided by the seller trading on its website in order to correctly declare VAT, if the information is not correct and if the marketplace can demonstrate that it did not and could not have known that the information received is incorrect.

In addition, the proposals detail the records online marketplaces need to keep of the sales they facilitate. Moreover, in order to ease the burden on online marketplaces, the Commission proposed to extend the use of the One Stop Shop (OSS) for online marketplaces also to domestic supplies. This allows to take account of the business model of fulfilment centers. Otherwise, marketplaces would not have been able to benefit from the OSS simplification as they would have had to register and account for VAT on domestic supplies from fulfilment centers to customers in every Member State, where a seller holds a stock of goods from which he makes such domestic supplies.

Finally, the proposals also specified the use of the One Stop Shop system, which allows taxable persons to register for VAT in one Member State only and lays down provisions necessary for the proper functioning of this system.

Moreover, Germany adopted a law on joint and several liability for marketplaces in November 2018 as Germany was not willing to wait until the proposals of the EU will enter into force in 2021.

The legislation obliges online marketplaces to obtain, keep and update paper-based “Tax-Certificates” from third party sellers where shipments start or end in Germany. Moreover, it establishes a default liability for marketplaces for unpaid German VAT, not only if they fail to collect the tax certificates from the sellers and provide them to the tax authorities, but also if they knew or should have known that a seller has unpaid German VAT. The law will become effective for non-EU merchants as of 1 March and for EU retailers as of 1 October 2019.

e) Fair taxation systems that also applies not only to local SMEs but also to international, data driven tech companies and marketplaces (digital taxation)

Tech companies are avoiding to pay their tax which leads to distortion of competition btw. our web shop services – being subject to local taxes - and their marketplaces avoiding often any tax payments as they are not resident within the EU.

The main tax challenges of the digital economy are:

  • Lack of nexus (or taxable presence in a jurisdiction), a business can be virtually conducted without any physical presence

  • Reliance on intangibles increases the ability of companies to structure themselves to minimise their tax liabilities and makes it more cumbersome for tax authorities to assess how income from such assets should be identified, valued and allocated amongst different parts of multinational groups.

  • Income characterization (between business income subject to corporate tax on net income and royalties/technical services subject to withholding tax on gross income) becomes extremely difficult.

  • Extensive use of data and user-generated content, which is particularly relevant for multisided businesses, raises the question on whether the users contribute to (tax relevant) value creation by providing their data to platforms in exchange for free access (which is then sold to online advertisers by platforms) in addition to enlarging the user base of the platform and enhancing its reputation through network effects

  • Spread of new business models, in which the buyer and seller are in different jurisdictions makes it difficult to determine the jurisdiction eligible for taxation under the existing rules, as assets and activities of digital businesses can easily move across jurisdictions to avoid taxable presence in a high-tax jurisdiction.

The expansion of e-commerce poses difficulties as to determine the responsible jurisdiction for taxation, with many sellers avoiding registration in third states, where they conclude transactions via platforms.

In 12 March, the proposal for a Digital Service Tax was blocked in the Council. The discussions in the Council showed that despite support from most Member States it was not possible to reach a consensus on the proposals, particularly due to opposition from Denmark, Sweden and Ireland.

The Council will now instead work on the EU’s common position at the OECD level where an agreement is expected to be reached in 2020. However, some Member States are moving forward on digital taxation.

On 1 January, France’s digital tax came into force. Online companies operating in France with global revenue of €750 million and more, and €25 million revenue on the French market only must pay the tax. 26 tech companies will have to pay the digital tax among which there is only one French company, advertising specialist Criteo, while most companies are American, like Google, Facebook and Amazon.

Therefore national solutions, such as the UK’s Diverted Profits Tax, Italy’s web tax and France’s YouTube tax, are the more promising option.