Meta is currently disputing a fee imposed by the European Union on larger online platforms in accordance with its updated e-commerce regulations. This lawsuit marks the first instance where the supervisory fee has become the central point of contention, with several major tech companies expressing dissatisfaction with their legal classifications. Politico was the first to report on Meta’s legal challenge, which occurred yesterday.
The EU Digital Services Act (DSA) will be fully enforced on in-scope digital services later this month, but it is already being applied to a subset of larger platform providers like Meta. The DSA includes provisions for charging these platforms, known as very large online platforms (VLOPs) and very large online search engines (VLOSE), to contribute to the cost of the bloc’s oversight of their operations.
The regulation states that the annual charge should consider the costs incurred by the European Commission, which enforces the DSA on VLOPs and VLOSE. The charge should be proportional to the size of the service, based on average active monthly regional users, and also take into account the provider’s economic capacity or that of the designated service(s) they offer. Meta offers two services, Facebook and Instagram, which fall under the umbrella of the DSA.
According to the Commission, the collected supervisory fees from VLOPs and VLOSE for 2023 amount to €45.24 million (~$48.7 million).
The European Union does not provide detailed reports on individual company fee payments. Accordingly, Meta’s contribution to the total amount is approximately €11 million, which accounts for just under a quarter of the total. Google, as the leading tech giant with the most services covered by the DSA, is making the largest contribution of nearly €22 million, accounting for almost half of the total. Other VLOPs and VLOS account for smaller amounts. For instance, TikTok is paying approximately 8.5% or €3.8M, Apple €3M, Microsoft €2.7M, and Booking.com €1.45M.
However, a few specific platforms, such as Amazon, Pinterest, Snapchat, and Wikimedia, did not make any payments in the initial round due to reporting a loss in the previous financial year.
According to Article 43 of the regulation, the DSA imposes a maximum limit on the annual fee that the EU can impose on VLOPs/VLOSE. This fee cannot exceed 0.05% of the worldwide annual net income of the previous financial year. The company’s full year 2022 revenue amounted to $116.61BN, indicating a potential fee of approximately $58.3M. However, it appears that the company has been charged more than this amount based on the fee calculation mechanism outlined in the regulation.
According to the EU, if a company has reported a loss in the previous financial year, it is exempt from paying the fee due to the existence of this cap. However, it refrains from providing any commentary on the potential impact of various strategies employed by tech giants, such as creative accounting, channel stuffing, or tax planning, to avoid reporting profits on paper and evade paying this fee.
Meta’s legal challenge centers on the calculation of the supervisory fee. The tech giant argues that the current mechanism is unjust as it exempts companies with a large user base but no profit from paying the fee.
“We are in alignment with the goals of the DSA and have implemented several measures to ensure compliance with our regulatory responsibilities. However, we hold a differing perspective on the approach employed to determine these fees,” expressed a representative from Meta. At present, companies that experience a financial loss are not required to make any payments, regardless of the size of their user base or the regulatory challenges they face. Consequently, certain companies are exempt from paying anything, resulting in an unfair distribution of the overall burden among other companies.
In addition to considering the user base and revenue of platforms, the EU’s method of determining the supervisory fee also takes into account the number of days platforms have been designated throughout the year.
When determining its oversight costs, the law requires the Commission to take into account its human resources and other administrative and operational expenses.
When asked about Meta’s challenge at the EU’s General Court in Luxembourg, a spokesperson for the Commission stated that all Commission decisions are subject to judicial review. Companies have the legitimate right to file appeals. Nevertheless, our decision and methodology are robust. We intend to vigorously assert our position in a legal setting.
“The variations in payment among different providers cannot be directly compared due to differences in their business models, market quotas, range of services offered, and net incomes, which in certain cases may be comparable to the GDP of mid-sized Member States,” stated the spokesperson for the EU.
The supervisory fee should align with and be commensurate with the financial capabilities of the provider. This is not intended as a punishment. The purpose of the fee is not to punish VLOPs or have a deterrent effect, as fines do. Instead, it is intended for regulated entities to contribute to monitoring and enforcement without impacting their business operations and compliance-related expenses. If a company has reported a loss in the previous financial year, it is exempt from paying the fee.
“Although some VLOPs may have experienced negative net income in a specific year for the purpose of calculating the latest fees, these instances are carefully examined,” they also informed us.
The spokesperson confirmed that all designated platforms fulfilled their commitments to provide the initial fee payments by the end of December. However, it is important to mention that three VLOPs were exempt from the fee this time because they were designated at a later date than the others: Last year, three porn platforms were classified as VLOPs. However, their user and revenue numbers are expected to decrease in the next evaluation.
In March of last year, the EU implemented regulations regarding the calculation of the supervisory fee through a delegated act. The Commission proceeded to provide the initial group of platforms it identified as VLOPs/VLOSE (April) with an estimation of the regulatory expenses allocated among them (prior to the conclusion of August). Decisions regarding the fees were made in November, and platforms were obligated to submit the payments to the Commission by the end of December.