The Electronic Retailing Association

Committee Bulletin: Public Affairs 1Q19

Report from the Public Affairs committee

A

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).

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

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.

Furthermore, our members are relying more and more on incumbent marketplaces such as Amazon for selling their products. Regulating a fair, balanced relationship between the incumbent marketplaces which are also competing on e-commerce with us and our webshops is a foremost objective in ensuring a vivid and successful environment for growth and new revenue streams. Therefore assessing and developing effective regulation concepts applicable to marketplaces is our second priority: Both the market dominance through its terms of business and practices towards sellers on the 'amazon.de' marketplace as well as the collection of data on sales transactions by third party sellers as our members are impacting a fair competition with our members. ERA Europe has set up a task force in assessing, updating and agreeing on next steps.

B

Q1/2019 Status on the relevant legislation dossiers affecting ERA Europe members

Given the overall policy goal to ensure a fair level playing field between our members being located within EU and complying with the set of regulation and traders from outside not complying, ERA Europe has identified the following recent dossiers:

  • Liability of marketplaces such as Amazon for the sale of counterfeit goods on their e-commerce platforms

  • 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

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

  • A balanced regulation on the relationship between incumbent marketplaces and business customers (P2B = platform-to-business)

I.

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 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.

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

b. Several 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 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.

c. Further changes on VAT as of 1 January 2019

On 1 January 2019, part of the eCommerce VAT package has 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

II.

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

Counterfeit goods are now estimated in 2019 to account for as much as 3.3 % of world trade (OECD study 17 march 2019). From an EU perspective, 6.8 % of imports from the rest of the world consist of fakes. This corresponds to EUR 121 billion per year. While China remains the top source of counterfeit goods, other countries have become increasingly important sources as well.

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.

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

In order to prevent the sale of counterfeit goods online, the Commission had 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.

III.

Fair Digital Taxation of non-EU e-commerce companies: Digital Service Tax (DST) blocked in Council but Member States continue national measures

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.

IV.

Update on Platform2Business Proposal (“P2B Regulation”)

ERA Europe members all have to rely on marketplaces (P2B) to retail their products online. The market power of some marketplaces potentially raises concerns, particularly in relation to the most powerful platforms whose importance for other market participants is becoming increasingly critical. The promotion of fairness and responsibility of online platforms is an area where further action is necessary to ensure a fair, open and secure digital environment.

In regulating these relationships, the EU has adopted a “Regulation on Platform to Business Relations” on 14 February 2019, entering into force in one year, evaluation in September 2021

The regulation aims to establish harmonised and mandatory rules to ensure that business users of online intermediation services and corporate website users in relation to online search engines are afforded appropriate transparency (via terms and conditions) as well as effective redress possibilities. Terms and conditions (T&Cs) for business users have to be drafted in “plain and intelligible” language and be easily available for the business user while any parameters that influence the ranking against remuneration have to be made transparent without, however, revealing algorithms. Imposing retroactive changes of T&Cs will be restricted and further clarity will be given in relation to the termination of contractual relationships. The business users will have the right to comply with changes in T&Cs in 15 days, longer periods can be granted if changes require significant technical adjustments to their goods or services. The role of mediation services will be strengthened, requiring two or more mediators to be indicated in the platforms’ T&Cs. Business users will have the right to know in advance the reasons why they are restricted or suspended from the platform (incl. complete suspensions notified 30 days in advance).

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

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

C

Further legislation updates: Data Protection

I.

Draft e-privacy regulation: Council to Adopt Position on ePrivacy in Late Spring

The ePrivacy Regulation, which would come on top of the data protection requirements of the GDPR, risks to impose serious restrictions on how online sellers currently do business.

In their latest proposal from 13 March, the Romanian presidency presented several changes to Recitals 20 and 20a, which concern the issues of end-user’s terminal equipment, the use of cookies, software settings and consent fatigue.

The recitals relate to Article 8 (Protection of EndUsers' Terminal Equipment Information) and Article 10 (Information and Options for Privacy Settings to be Provided). On Recital 20, the new text specifies that the use of cookies to visit websites would not normally be considered disproportionate. This is crucial for many small webshops who depend on third party cookies for advertisement revenue. This is a positive step towards avoiding a damaging cookie wall ban which would strongly affect small webshops.

However, the most significant change relates to a clarification under Recital 20a. The change clarifies questions raised by Member States regarding consent of request of information and consent granted by end -users to a specific provider through software settings. The text now states that end-users may grant consent to a specific provider ‘for one or multiple specific purposes’. Other controversial issues still remain. This includes the question on how to deal with metadata, the question of data retention, the question of the supervision of the application of the regulation and its scope also in view of a potential overlap with the GDPR, which was also the subject of a report of the European Data Protection Board.

Although the exact date for the adoption of a common Council position is still unclear, Council representatives indicated that the trilogue negotiations will be taking place under the Finnish Presidency. As the European Parliament’s rapporteur, MEP Birgit Sippel, has good prospects to be reelected, trilogues are expected to fully start after the inauguration of the new European Parliament at the beginning of July 2019.

II.

ECJ – opinion of AG: A Pre-Ticked Box is Not Sufficient for Valid Consent

In an opinion, Maciej Szpunar, advocate general of the European Court of Justice (ECJ), confirmed that under the current EU data protection legislation companies cannot assume that consumers have given their consent to cookies freely and in an informed way only because they failed to uncheck a box.

In a much-anticipated but unsurprising opinion, advocate general Maciej Szpunar confirmed that the fact that a user needs to untick a box to refuse the consent to cookies does not reach the bar of “freely given” and “informed” consent. This means that companies cannot assume the consent of consumers only because they failed to untick a box. According to the opinion, there is no difference whether the information stored or accessed constitutes personal data. Although the opinions of the advocates general are non-binding, they are often followed by the ECJ.