The Electronic Retailing Association

Committee Bulletin: Public Affairs 4Q18

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

A. Outlook ERA Europe 2019: level playing field between EU based e-commerce companies and marketplaces from outside the EU

Ensuring a level playing field between our companies which are located within the European Union and all of them complying with the European regulation set on consumer protection, product quality and tax liability, and companies shipping their products to the EU market but not complying with these conditions, is the most important policy goal for ERA Europe in 2019.

ERA Europe will focus its public affairs work in 2019 therefore on encouraging the EU as well as the responsible local enforcement authorities and governments to take the necessary actions and measures to identify and to tackle the conditions benefiting e-commerce businesses which are not resident within the EU and use this to not play along the common set of regulation. The ERA Europe Board of Directors presented their action plan to the members during the annual membership meeting in Munich in January 2019, decided on action points and kicked off the corresponding working streams.

B. Update on the ERA Europe Public Affairs Activities in Q4/2018

Given the overall policy goal to ensure a fair level playing field between our members located within the EU and complying with the set of regulation, and traders from outside who are not complying, ERA focussed its public affairs work in Q4/2018 on the following recent dossiers:

- Sale of counterfeit goods on e-commerce platforms, in particular the watchlist of the European Commission in assessing effective measures in tackling the sale of counterfeit good and the assessment on the functioning of the Memorandum of Understanding on the Sale of Counterfeit Goods via the internet (‘MoU’) with key stakeholders

- Changes to VAT, in particular regarding the VAT liability of online marketplaces for reducing VAT evasion from third country online sellers

- Level playing field btw. Online Marketplaces and e-commerce companies including the Proposal on Platform to Business requiring more transparent terms and conditions by online intermediaries such as platforms/ marketplaces/ search engines

- Market developments and studies: UNCTAD Study on the Markets readiness for e-commerce within EU

1. VAT Liability of Online Marketplaces in order to reduce VAT evasion from third country online sellers

a. EU Proposals - Commission Clarifies VAT Obligations for Online Marketplaces

The European Commission presented 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 by 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 centres. 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 centres 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.

The proposals were already presented to and welcomed by the Member States. The Romanian Presidency intends to finalize and adopt the proposal by latest end of the first half of 2019. The provisions will then enter into force in January 2021. The Commission launched a public consultation on the proposed Council directive which runs until 5 February 2019 in which ERA Europe will take part.

https://ec.europa.eu/info/law/better-regulation/initiatives/com-2018-819_en

b. National initiatives on VAT liability of online marketplaces:

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 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.

c. Further changes on VAT as of 1 January 2019

On 1 January 2019, part of the eCommerce VAT package entered into force aiming at the simplification of VAT obligations for SMEs supplying telecommunications, broadcasting and electronic services to other Member States, such as the supply of digital content or software.

As of 1 January 2019, companies that are supplying telecommunications, broadcasting and electronic services to other Member States and that do not exceed a threshold of an annual turnover of €10,000 will profit from an exemption and be subject to VAT in their own Member State instead of the one where their consumers are located.

Moreover, SMEs generating annual revenues from cross-border sales below €100,000 will only need to present one piece of evidence to verify the location of the consumer instead of the current two pieces. Instead of the current burdensome practice of applying the local rules for invoicing of the Member State where the consumer is located, businesses will now have to use the rules of their Member State of identification. Finally, non-EU businesses who have an EU VAT registration number can now also use the MOSS portal.

The provisions of the eCommerce VAT package related to the online sale of goods will enter into force in January 2021.

https://ec.europa.eu/taxation_customs/business/vat/telecommunications-broadcasting-electronic-services/sites/mossportal/files/what_is_new_as_of_2019.pdf

2. Counterfeit goods on e-commerce platforms harming the business model of EU based e-commerce industry, in particular of smaller and medium-sized enterprises (SMEs) such as our members

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 and piggy back these listings with their own products. They add their own price and delivery options and provide Amazon with their (counterfeit) stock. The Amazon Buy Box lists for a certain product the price, delivery options and ratings. With the low pricing the counterfeiters win this buy box as the listing usually lists the cheapest product first.

However, as these are counterfeits, they do not keep the quality standards and kill the customer rating of a product in a short time frame. This leads not only to a loss of sales with regards to that product but also ruins the overall reputation of the product owner.

Important initiatives on counterfeit:

a. EU Commission publishes a Counterfeit and Piracy Watch List

After a key stakeholder consultation, on 10th December 2018 the European Commission published a list of non-EU websites and firms that they deem responsible for piracy and counterfeiting abuse of European products, including films and music – this publication refers to one of our top policy priorities for 2019: to ensure a level playing field for our companies complying with the EU legal framework.

The Watch List aims to encourage the operators of these marketplaces, local enforcement authorities and governments to take action to crack down on intellectual property abuse. It also aims at making EU citizens aware of the environmental, product safety and other risks of purchasing from problematic markets.

  • The non-exhaustive list identifies eCommerce marketplaces such as Bukalapak, the most popular online marketplace in Indonesia or the EVO Company Group that manages several marketplaces in Russia, the Ukraine, Belarus and Kazakhstan as being involved in counterfeiting and piracy. Platforms like Amazon, eBay and Alibaba are not listed as their level of compliance was much higher and they are generally open for cooperation with rightsholders.

The Commission identified the following e-commerce platforms potentially enhancing the sell or otherwise trade in counterfeit goods and services.

  • Xxjcy.com and China-telecommunications.com (China)
  • Bukalapak (Indonesia)
  • EVO Company Group (Tiu.ru, Prom.ua, Bigl.ua, Deal.by and Satu.kz)
  • Lazada.co.th (Thailand)
  • Naver.com (Korea)
  • Snapdeal.com (India)

• EU Commission identifies further platforms (including Amazon) for ongoing efforts to reduce the offer of counterfeit goods

A number of stakeholders reported other platforms (Aliexpress.com, Tmall.com, Taobao.com, 1688.com, Amazon.com and eBay.com) where, stakeholders maintain that, despite efforts, a significant volume of allegedly counterfeit goods is offered. It is noted that according to stakeholders further progress is needed to ensure that offers of counterfeit products disappear from these platforms or are significantly reduced.

The Watch List has four focus areas: websites providing copyright-protected content, e-commerce platforms, online pharmacies as well as physical marketplaces. The list will be updated every two years. This Counterfeit and Piracy Watch List is part of a broader effort to ensure that European companies can operate on a level playing field when trading outside the EU’s borders, and that EU consumers are safe.

The initiative is part of the Commission’s intellectual property rights strategy announced in 2017. The Watch List will be updated every 2 years and will be used for the cooperation with the EU’s trading partners to combat infringements of intellectual property rights.

Further information can be found here:

http://trade.ec.europa.eu/doclib/docs/2018/december/tradoc_157564.pdf

b. The European Commission has moderated a Memorandum of Understanding on the Sale of Counterfeit Goods via the internet (‘MoU’), which might be revised in 2019

In order to prevent the sale of counterfeit goods online, the Commission set up a process in a Memorandum of Understanding on the Sale of Counterfeit Goods via the internet (‘MoU’) for products for which counterfeit and pirated versions are sold online (e.g. fastmoving consumer goods, consumer electronics, fashion and luxury products, sports goods, films, software, games and toys), operating at regional and global level. The intellectual property rights covered by the scope of the MoU are registered trademarks, registered design rights and copyright set out in applicable Member State or EU law. The MoU includes commitments on pro-active and preventive measures.

The platforms provide appropriate technology, such as filters, and monitoring programmes in order to detect illegal content. The MoU also includes a number of commitments on Notice and Take-Down procedures (‘NTD’). In the context of the MoU, NTD procedures make it possible for: a) Rights Owners to notify Internet Platforms about alleged Counterfeit Goods being offered on their sites, and b) Internet Platforms to remove individual offers of alleged Counterfeit Goods from their sites.

Some Internet Platforms have policies which allow sellers to open only one store (one ID). Therefore, once that store is shut down, the ID is blocked from opening a new store. Also, once a seller is banned, they are put on a blacklist. The MoU was concluded in May 2011 and revised in 2016. Although, the two market leading platforms, Amazon, eBay and Alibaba, signed the renewed MoU, the instrument does not work in practice to tackle these counterfeits.

3. UNCTAD Study: Markets readiness for e-commerce within EU

According to United Nations Conference on Trade and Development’s (UNCTAD) eCommerce Index, the Netherlands is the most eCommerce ready in the world. According to UNCTAD's Business-to-Consumer eCommerce Index 2018 that ranks 151 countries for their readiness and capacity to support eCommerce, the Netherlands is the most prepared country for eCommerce in the world followed by Singapore, Switzerland, United Kingdom, Norway, Iceland, Ireland, Sweden, New Zealand and Denmark.

The ranking is based on the following four indicators: (i) percentage of account ownership; (ii) percentage of the population using the internet; (iii) Postal Reliability Index; (iv) secure internet servers per 1 million people. Eight of the top ten countries for eCommerce are located in Europe and attained index values extremely close to each other.

Asian countries are leading the top ten of developing countries where except for Chile all countries are upper-middle-income or high-income economies located in East Asia or the Middle East.

To read more about the UNCTAD eCommerce Index 2018: https://unctad.org/en/PublicationsLibrary/tn_unctad_ict4d12_en.pdf?user=46

4. Publication of a Q & A Factsheet on the Geo-blocking Regulation1 (EU) 2018/302 – having direct effect- having entered into force on 3 December 2018.

As the Geo-blocking Regulation is applicable to all kind of webshops, all ERA Europe members had to assess carefully the regulation and had to consider implementing measures and tools for complying with the regulation before 3 December 2018. ERA Europe prepared a Q&A and a Factsheet on the most important issues. These documents are also available on

https://era-europe.eu/entries/1038-update-on-geo-blocking

The Regulation addresses the problem of customers not being able to buy goods and services from traders located in a different Member State for reasons related to their nationality, place of residence or place of establishment.

5. Update on Platform2Business Proposal (“P2B Regulation”)

https://ec.europa.eu/digital-single-market/en/news/regulation-promoting-fairness-and-transparency-business-users-online-intermediation-services

The Platform Regulation’s adoption is moving and the political negotiations between the European Parliament and the Member States will start early 2019. The text for the negotiations has been prepared, outlining the areas where controversies can arise during the negotiations.

The main controversies that have been outlined in the regulation remain: 1) the possible inclusion of online search engines under the regulation 2) the application of the regulation irrespective of the law applicable to the contract 3) the disclosure of parameters of rankings, including vis-a-vis remuneration 4) Terms & Conditions 5) information about the use of data regarding business users 6) entry into force (18months v. 3 years) 7) Annex defining commercial practice to be regarded as unfair in all circumstances.

The regulation is first of a kind in the EU and will be regulating, in a soft manner, the relationship between the platforms and webshops which use platforms for their sales. Its aim is to provide more transparency between the online intermediaries and the business users and establish webshops’ minimum rights regarding their suspension from the platforms and give them guidance how their ranking is influenced.

Due to the importance of this file, ERA Europe addressed its concerns. ERA Europe believes that the Commission proposal for a P2B Regulation recognises the systemic nature of unfair business practices by certain online platforms and the serious harm they inflict on innovation, competition and consumer choice. However, the current proposal focuses on transparency, but targeted measures to prevent unfair practices by platforms are needed if the legislation is to promote sustained digital growth. ERA Europe stressed that transparency alone will not rebalance the relationship between platforms and the businesses that depend on them. The P2B Regulation should prohibit the most harmful business practices, in particular those that reinforce a platforms’ privileged position or unfairly favour proprietary services and which have no clear consumer benefit.