The Electronic Retailing Association

Committee Bulletin: Public Affairs 3Q19

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

Report from the Public Affairs committee

I. Impact on ERA Members: New EU Commission – new priorities

On 16 July 2019, the European Parliament elected Ursula von der Leyen as President of the European Commission. She has set out an ambitious agenda in her speech before the European Parliament, pointing out six key areas, one of which is dedicated to how to make “Europe fit for the digital age”:

https://ec.europa.eu/commission/sites/beta-political/files/political-guidelines-next-commission_en.pdf

This will presumably trigger the following legislation dossiers:

  • Reviewing the E-Commerce Directive that dates back to the year 2000 and since then remains one of the cornerstones of European internet regulation. Von der Leyen has made updating it one of the goals of her Commission Presidency: a new “Digital Services Act” will be proposed in order to “upgrade our liability and safety rules for digital platforms, services, and products”.
  • Leading the Council of the European Union into adopting a General Approach on the ePrivacy Regulation, which has been blocked by Member States.
  • Following up on a European-wide digital tax, an initiative blocked by some Member States by referring it to the OECD level to find a compromise while others went on in introducing a national digital tax system.

Our most important policy dossiers will presumably be either be dealt as digital-related dossiers by Margrethe Vestager (Denmark), Executive vice president for the Digital Age and Commissioner Mariya Gabriel, Innovation and Youth (Bulgaria) or as consumer-dossiers by Commissioner Sylvie Goulard, Internal Market (France).

II. How these priorities correspond with our activities and priorities

1. EU Commission considers a complete overhaul of regulation on online platforms by a new Digital Services Act changing the liability regime

One of Von der Leyen priorities of her Commission Presidency will be how to make “Europe fit for the digital age” as she pointed out in her speech before the European Parliament. The EU Commission is considering to replace the decades-old framework of the e-Commerce Directive, a note by the European Commission suggests. The document outlines a complete overhaul of the rules governing the internet and the online platforms in order to “upgrade the liability and safety rules for digital platforms, services, and products.

The new Act would affect „all digital services and in particular online platforms“, according to a first paper. The note mentions social networks, cloud services, services such as Uber and Airbnb as well as internet service providers. The paper was written by officials in the Commission’s Directorate-General Connect. It is part of a discussion process towards a more detailed proposal to be brought forward by the next Commission.
At the core of the note is the Commission’s wish for companies to take more responsibility for content on their platform. As one way to achieve this, the paper suggests changing liability rules.

Currently, under article 14 of the current e-Commerce Directive, providers are only liable for illegal content uploaded by users, such as copyright infringements, if they do not remove it after being requested to do so.
This could change. The note proposes to distinguish between providers and, in some cases, to prescribe „proactive measures“ to avoid direct liability. Such measures could include upload filters, as required by the recently adopted EU copyright reform.

Whereas the act focus on content issues, the plans to change the liability regime in general and shift the compliance responsibility to online platforms will be a game changer in the area of combating counterfeits. Unlike today, e-commerce marketplaces as Amazon would be liable in removing illegal products from its platform, a position taken by ERA Europe.

The paper lists different options for monitoring compliance with the rules. The Digital Services Act could create a new „central regulator“, but there could also be a decentralised system or „an extension of powers of existing regulatory authorities

A new College of Commissioners is due to take office in Brussels this autumn. The Digital Services Act is likely to be one of the first things on its agenda.

Review of e-commerce Directive meets the 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.

We are constantly pushing for a review of the the e-commerce Directive and a shift of the liability to online marketplaces in order to combat the e-commerce sales of counterfeit goods through online marketplaces. This legislation initiative will be therefore at the core of our policy work for the next weeks and years to come.
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 online marketplaces must be 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) and which should be applied by a revised e-commerce directive by lifting the privilege. Online marketplaces should only be 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 in August 2019.

2. Moving forward in developing a digital tax system EU-wide

Mrs. Van der Leyen declared that, if by the end of 2020 there is still no global solution for a fair digital tax, the EU should act alone. A common consolidated corporate tax base would provide businesses with a single rulebook to compute their corporate tax base in the European Union. Therefore she promised to make use of the clauses in the Treaties that allow proposals on taxation to be adopted by co-decision and decided by qualified majority voting in the Council.

Such a move forward on introducing a fair taxation system that also applies not only to local SMEs but also to international, data driven tech companies and marketplaces (digital taxation) meets the position taken by ERA.

Tech (non-EU) 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 moving towards an EU-wide tax system, differences from EU Member State to EU member State proving also burdensome in setting up businesses could be prevented.

3. Online Data protection: Reviving the ePrivacy Regulation

ERA is convinced that a new approach to ePrivacy is necessary.

The (old) Commission’s proposal as currently discussed raises serious concerns regarding its potential impact on the business models and harm particular digital EU small and medium-sized enterprises on their sustainability and their marketing tools.

The proposed draft ePrivacy Regulation in its current form would consolidate market dominance for the same handful of players it seeks to curtail as it will (indirectly) only benefit large platforms. The ePrivacy Regulation in its current form disadvantages SMEs and therefore our members. SMEs are not generating big data and have to rely on third parties that can use their network effects in comparison to the SMEs to have reliable market data and analysis. The ePrivacy Regulation enhances monopolistic effects and hampers diversity of services and products because it strengthens the gatekeeper position of browsers or telecommunication companies via the prior consent principle. Broader forms of online marketing are not covered by Article 16 as they do not target particular individuals. A proposal should fully align with the GDPR. More clarity is needed on a number of issues regarding the compatibility with GDPR.

As a new European Commission is appointed, a new legislation push to proceed with the draft is expected. ERA will continue in asking in the debate for a new legal draft delivering a technologically adequate, neutral and practically feasible regulation, adjusted to today’s digital economy and taking into considerations the sustainability of smaller and medium-sized enterprises such as our members.

ERA has set out its concerns in a position paper: https://era-global.org/entries/1037-e-privacy-regulation.