Europe needs fair rules of play

Brussels will monitor progress and point out shortcomings. The EC will work with Member States to develop a pathway to achieve each target, and then each country will prepare its own national plans, demonstrating in detail how it intends to implement them.

Poland in particular will have a lot of work to do in this area, because although we boast the highest mobile broadband take-up in the EU, Polish digital skills are in a lamentable state. In the DESI Digital Economy and Society Index, we regularly end up at the bottom of the list. And it is this very ranking, prepared annually by the EC, which will become one of the main tools for monitoring progress.

The Recovery Fund, which has just been set up to help Europe recover from the pandemic, will help with the digitisation process. A total of €750 billion could go to the Member States by 2026, with one out of every five euros to be spent on digital investments.

However, the EU may struggle to meet its digital goals if it does not establish common rules for action first.

“The goals that the EU has set for itself under the ‘Digital Compass’ for the next decade will not be achievable without ensuring fair ‘rules of play’ for the digital market, for consumers, citizens and competing companies alike. Without them, the EC’s ambitious assumptions may prove impossible to achieve or even achieve the opposite effect,” stresses Mateusz Grochowski, PhD, a lawyer from the Max Planck Institute in Hamburg. In his opinion, based on experience to date, the development of technical infrastructure and IT technology, which is one of the key focuses of the “Digital Compass”, may lead to a further concentration of market power in the hands of the largest companies and deepening social inequalities. “Fulfilling the vision of digital transformation of European society must therefore go hand in hand with sufficiently effective mechanisms for organising new areas of the market and social life,” he notes.

Divergent interests

Brussels has prepared two legislative proposals to organise the digital market and regulate the activity of technology companies. These are the DSA (Digital Services Act) and the DMA (Digital Markets Act). The first will increase the responsibility of technology companies for their online activities, and the second will prevent centralisation and abuse by the largest companies. Now both proposals are being worked on by the European Parliament, on one hand, and Member States in the EU Council, on the other.

At the moment, there is no prospect of a speedy conclusion of this work by either body. It is known, however, that France, which will take over the rotating presidency in the first half of 2022, will want to reach an agreement as early as March. But Paris is among those capitals who want to regulate big tech as quickly and as effectively as possible. Others have less appetite for it. One issue dividing Member States is how much power the EC should have in controlling tech companies.

Katarzyna Szymielewicz, President of the Panoptykon Foundation, stresses that the most important thing is to break the power of dominant platforms, which is the goal of the DMA. This power is based on the use of large data sets and algorithms. “Algorithms in particular are problematic because they work in ways that are not transparent to consumers, competitors and the regulator. They provide huge competitive advantages and disturbing opportunities for abuse, e.g. in the area of manipulating decisions, including political ones, and spreading disinformation,” she explains.

Mateusz Grochowski, on the other hand, says that the DMA envisages a very strong concentration of powers in the hands of the EC, enabling control over and the imposition of penalties on large companies. “The commission is to become a super-regulator of the digital market,” he says. The expert believes that Brussels is the institution with the best tools to control large transnational corporations. In his opinion, it is the decentralisation and different approaches taken by governments that give these corporations so much freedom.

A threat to the smaller ones

Marta Pawlak, a legal expert on the StartUpPoland Foundation board, sees potential threats for smaller businesses in Brussels' proposals as well. “The consequences of introducing the DMA will be borne by small companies, start-ups. Something similar happened with the introduction of the GDPR regulation, which forced companies to hire lawyers or use the services of specialised firms. Costs associated with the implementation of GDPR were a greater burden for smaller companies and reduced their resources for investment. It will be the same with the DMA,” he believes. Under the DMA, he adds, bundling of services will be prohibited – for example, combining travel and hotel bookings with a car rental service. Such a list of prohibited practices could, in the case of start-ups, lead to problems in separating office tools from teleconferencing, cloud, mapping, or efficiency-enhancing tools such as online advertising, which enable start-ups to find customers, while cloud computing helps reduce overheads and increase productivity, which means that legislation could make it harder, not easier, to achieve digital goals.

Levelling the playing field with taxes

Taxing big tech is another challenge. In the European Union, this discussion has been going on for years. The EC tried to solve the issue at the OECD level, but now there are chances for an even broader, international solution.

As Deputy Finance Minister Jan Sarnowski recently explained in an interview with PAP, currently, the multinational corporations, including digital giants, e.g. smartphone manufacturers, digital content platforms or streaming services, are generally taxed in their country of domicile. This tends to result in low taxation, to the detriment of other countries whose residents generate the bulk of these companies' revenues.

The remedy for this problem is reform of the global tax system and introducing, with regard to digital giants, among others, a minimum tax rate of 15 per cent from 2023. The relevant legislation is expected to be enacted next year.

Preliminary agreement on this issue has been worked out at the OECD. The decision on a global tax was approved by the G20 summit in October. Under this decision, companies will have to pay taxes where they operate. The global minimum tax rate will apply to corporations with a global turnover of more than EUR 20 billion. This threshold may be lowered over time.

“This is an equalisation tax, and its introduction is supposed to establish a so-called level playing field in tax systems. In essence, the principle is simple: if a foreign corporation in a given country pays an effective income tax below this threshold, its parent company will pay the difference in the country of its registered headquarters,” Sarnowski explains. According to him, the proceeds from taxing, e.g. digital giants will go to the State Treasury and can be allocated for any purpose that benefits citizens.

Dominik Gajewski, a judge at the Supreme Administrative Court and professor at the Warsaw School of Economics, believes that the changes will be beneficial both for states and consumers. “Finally, states will be aware that they are not only confined to their internal legislation, which unfortunately is most often not very effective,” he says. It’s about tax unity in the face of taxpayers with powerful lobbying capabilities. That way, he explains, consumers will understand that the consequences of not paying taxes are also costly for them. And small businesses will know that an uneven playing field will not result in higher tax costs being shifted onto them. ©℗