Yesterday, the European Commission announced their vision for reshaping the Digital Economy in the European Union. There are a total of 16 areas that are in the firing line for improvements.
There are a number of good initiatives in the proposals that all aim to enhance the experience for consumers, businesses and presumably the Member States themselves. With not much in the way of detail at this point in time – and that’s understandable – I wanted to highlight and make some initial comments on some of the 16 points.
1. Simplification of Cross Border EU VAT Compliance
There is certainly a ray of hope for many small, medium and large businesses who for years have been tied up in the complex, contradictory and costly requirements for selling goods and services across the EU. This is especially true in the B2C realm and despite the good efforts of the 2010 & onward B2B VAT reforms, still remains challenging in the B2B environment as well.
The EC press release talks about common VAT thresholds and the removal of the antiquated Distance Selling Regime. These are indeed excellent ideas and ones I have brought up time and time again. (See here). However, if we are going to do this right then the Commission needs to take a significant look at the wider cross border EU VAT rules in the same wide ranging approach that it has for the Digital Economy. Without this comprehensive review, I predict businesses will still be unwilling to expand and contribute to the EUR415bn growth target the Commission is predicting.
The specific quote from the press release is reproduced below.
“to end unjustified geo-blocking – a discriminatory practice used for commercial reasons, when online sellers either deny consumers access to a website based on their location, or re-route them to a local store with different prices. Such blocking means that, for example, car rental customers in one particular Member State may end up paying more for an identical car rental in the same destination.”
As others have noted, geo-blocking has been a thorn in the side of the Commission for many years. However, it is a perfectly legal and justifiable means for businesses to ensure that products and services are not provided to individuals or businesses in certain jurisdictions. Denying consumers access to their goods or services is a fundamental right of businesses. It may be that regulatory, commercial or other legally enforceable agreements prohibitively state that the goods or services cannot be sold to certain people or jurisdictions and that violating those laws or agreements could bring financial or criminal harm to the business.
The Commission’s comment on referring consumers to a local store (with different prices) is often as a direct result of their own rules and regulations. If as a seller, I am required to account for Swedish VAT on a consumer sale (having breached the Distance Selling threshold in Sweden) then I’m not going to allow a Swedish consumer to try and buy that product from a UK e-store that has pricing at a different VAT rate. Geo-blocking is therefore wholly necessary to ensure that businesses can trade identical items across multiple jurisdictions and show appropriate pricing for consumers in certain locations while maintaining profit margins.
The car rental example clearly doesn’t take into account the commercial facts that car rental companies face when dealing with consumers in a different country. The different pricing may be as a result of increased insurance costs, business risk relating to loss and difficulties in pursuing consumers cross border to recover expenses. The example is a poor one and so let’s hope the team looking at this realizes that geo-blocking is a relevant and needed business tool in the digital world.
3. E-commerce Sector Anti-trust Investigation
It’s moves like this that wonder if the Commission secretly wants to be the Good Cop/Bad Cop character from the Lego Movie. The inquiry is looking at whether businesses have been deliberately putting up barriers that deny consumers access to goods or services.
Given the EU just flagged a whole host of reasons as to why cross border growth in the digital economy isn’t as good as it should be, I just don’t get why this needs to be a focus right now?
Perhaps the Commission should ask nicely first and get businesses on their side before using the following words:
“Under EU antitrust rules the Commission can require companies and trade associations to supply information, documents or statements as part of a sector inquiry.”
As always, comments are welcome here or via email.