From protecting data to equal tax law, the new e-commerce rules

E-commerce is not only disruptive for retail. It has also turned legislation upside down. For this new business model, Brussels has had to start defining a new legal framework that ensures a fair and competitive game for all its players. Personal data protection law, the taxation system, geo-blocking or falsifications are some of the elements included in the brand-new legislation specifically created for the regulation of the online sales channel. However, there are still doubts surrounding whether regulations should keep going further or if legislating too much is actually trying to stem the tide.

Mariano Rajoy, at the time president of Spain, addressed the audience of World Retail Congress, the sector’s most relevant meeting. The event took place in Madrid last May, and in it, the former president spoke about how he would work to find a balanced legal framework so that retail companies could compete on equal terms. Sitting on the auditorium’s first row and next to Rajoy were several retail heavy weights from Spain.

Among them, Tendam’s (previously Grupo Cortefiel) general manager Jaume Miquel, and the back then president of Spanish department stores El Corte Inglés, Dimas Gimeno.

Rajoy stood in favour of Asociación Nacional de Grandes Empresas de Distribución (ANGED), in English the National Association of Large Distribution Companies, which is constituted by partners such as El Corte Inglés, C&A or Tendam, to name a few. From some time now, this large distribution lobby demands that the current legal framework is updated in order for traditional retailers to compete on equal grounds against huge online players.

“The regulation framework that rules commerce is designed for an analogic world, made of physical stores, and for a consumption structure more typical of the eighties than the 21^st century”, claims Javier Millán-Astray, Anged’s CEO. “We have a complex regulation system that is fragmented in 17 autonomous communities, which entail expensive costs”, states the executive.

Personal data protection law, the taxation system, geo-blocking or falsifications are some of the elements included in the brand-new legislation

In fact, Anged’s petitions are starting to match those of Europe. This year, the European

Commission warned about the fact that trade restrictions are affecting physical stores severely and that they limit the capacity of companies to adapt and react to the changes induced by e-commerce and digital transformation.

Furthermore, the European executive pointed out that the accumulation of several and complex legal frameworks at national, regional and local level, as happens in Spain, have a negative impact on the sector’s efficiency, on prices and on competitivity. In a research carried out by the European Commission, Spain stood as the second country from the European Union with a larger number of restrictions imposed on the course of trade and the freedom of establishment.

According to Millán-Astray, “under the current legal framework, it is simpler to import products from China through a marketplace, than to install a large store in the centre of many cities”. In that sense, Anged’s CEO highlights three aspects that reduce competitivity: business hours, barriers when opening new stores and specific autonomic taxes on huge commercial establishments.

Business hours, barriers when opening new stores and specific autonomic taxes on huge commercial establishments reduce traditional companies’ competitivity against e-commerce

“Hyper regulation, the rupture of market unity, operative restrictions to business practice and the taxation system that only a part of the sector’s companies suffer today are incompatible with the digital environment in which they operate”, states he. And, in that sense, the executive adds that “commerce in Spain requires a modern framework of regulation that face the changes induced by digital transformation and enable all players to compete with the same freedom of enterprise”.

Notwithstanding, small and medium business linked to fashion retail which are majorly defended by Acotex, the Business Association of Textile and Complement Trade, drift away from Anged’s speech. The president of Acotex, Eduardo Zamácola, underlines that retail must advance towards omnichannel experiences. “Today, is harder to say what implies less costs, if an offline or online business: is it cheaper to have a store in the Salamanca neighbourhood or a warehouse for 24 hours delivery?” wonders Zamácola. The executive is also the head of the children fashion company Neck&Neck.

According to the businessman, the existent friction between online and offline has everything to do with tax matters and concretely, with those players that have headquarters located in countries that pay lesser taxations. Still, Zamácola considers that it is not a disloyal competence but rather about knowing how to profit from each country’s regulation: “it would be like saying that Spain has a competitive advantage because its wages are lower”.

There are two kinds of information about users: a questionnaire at the first layer, and privacy policies at the second.

Until now, the law has advanced further in the regulation of online trade than in decontrol offline trade. So far, the legislation that sets limits to e-commerce and defines its playing field has been well received by the players. “The legislation imposed on the online environment is positive because it provides security and that ensures the sector’s growth” explains Diego de Vicente, the general manager of Moddo, specialised in technological solutions for e-commerce stores and platforms.

“Under a legal framework, some opportunist gaps are avoided, as legislating is just defining the limits and not completely restricting them”, claims the entrepreneur. He adds that, due to uncertainty, investment is stepping back. “It is all about setting the issue down in black and white and clarify the rules of the game”, assures he.

Nevertheless, there is still no common legislation for European e-commerce. “Even though there is a uniform regulation for certain matters, the sole digital commerce in the European Union is still undergoing a phase of construction”, explains Cristina Mesa, main associate of Garrigues Industrial and Intellectual Property Department. She claims that the main regulation differences among the twenty-eight are quite considerable, entailing an “authentic obstacle for digital commerce’s development and reducing competitivity in the digital market”.

Law for the Protection of Data

In full Fourth Industrial Revolution development and straight on digitalisation of economy, the data has been erected as new petrol for companies. In May 2018, the new Regulation for Data Protection began to be implanted, which has entailed the biggest change of regulation in the history of the European Union’s internet. For several weeks, companies bombarded their clients with e-mails, informing them about the changes in privacy conditions. With this new condition, the way in which companies relate data with consumers changed.

“The use of personal data is ethical as long as on one hand, the regulation is followed, and on the other, users are properly informed about what their data will be used for” points out Alejandro Padía, adviser for the Commercial Law Department, IT and data protection at Garrigues. According to Padía, an unethical way to use data is not reporting to people enough or using them for things other than the previously informed. “Without a doubt, we are at a time in which the lack of data control could lead to worrying situations, and us consumers must insist on companies carrying out the existent regulation and informing us as it is due”, claims he.

Andrés Castelo, a partner director at Apdtic, consultant of TIC law professionals, agrees with him. As Castelo puts it, consumers must be aware that surfing the internet or purchasing online is not always free, because there is always a company behind it which is gathering all their data. “All companies must comply with the regulations and let us know how our data is going to be used, with what purpose”, explains the expert. He also points out that, although many companies already do so, some should be more transparent “because the access of consumers to that information is really not that simple” and, in most cases, letters are way too small.

Data has been erected as the new petrol for companies

According to Castelo, there are two kinds of information that companies have on users. On one hand, a questionnaire filled up at the first layer, and on the other hand, at the second layer, there is privacy policies. Besides these two, there is another level of data, according to Castelo, which are the cookies.

“The new regulation enables to deactivate cookies, but that is something barely no one does”, he says. The advisor highlights how the disadvantage of cookies is that no one really knows what is behind them and who handles the data; the advantage are the adverts and facilities that they provide to consumers. “It is each user’s responsibility to value whether they give consent to a company or not”, states he.

Following that same line, Jordi Ferrer, professor of operations, innovation and data science department at Esade, considers that most companies know the tools to distract consumers and continue to act within the established legal framework.

“Most web users click to close the window then the cookies warning comes up, but still, people should be responsible to control their personal data”, explains Ferrer, who underlines that, when sharing their data “consumers are handing out a gun for companies that can later be used against them”. According to the expert, sanctions against the company can be imposed, but large groups do not really care because it is more profitable to pay a fine than to stop controlling their users’ data.