Meta challenges EU’s Digital Services Act supervisory fee as unfair

Meta is challenging a fee levied by the European Union on larger online platforms under its rebooted ecommerce rules. While a number of tech giants have taken issue with their designations under the law, this is the first suit that’s focused on the supervisory fee. The news of Meta’s legal challenge was first reported yesterday by Politico.

The EU Digital Services Act (DSA), which goes fully into force on in-scope digital services later this month but is already being applied on a sub-set of larger platform providers like Meta, makes provision for charging these so-called very large online platforms (VLOPs) and very large online search engines (VLOSE) to help fund the cost of the bloc’s oversight of their businesses.

The regulation stipulates that the amount charged annually should take into account the costs incurred by the European Commission, which is the primary enforcer of the DSA on VLOPs and VLOSE; and be “proportionate” to the size of the service (based on average active monthly regional users) and also factor in the provider’s “economic capacity”, or that of the designated service (or services) they offer. (In Meta’s case, it provides two services which are designated under the DSA: Its social networks, Facebook and Instagram.)

Per the Commission, the total pot of supervisory fees it has collected from VLOPs/VLOSE for 2023 is €45.24M (~$48.7M).

The EU is not reporting per company fee payments. But TechCrunch understands Meta’s contribution to that total is just under a quarter — or around €11 million. While Google, which is the tech giant with the most services designated under the DSA, is contributing the most — almost half (circa €22M). Other VLOPs/VLOSE account for smaller amounts (for example TikTok is paying about 8.5% or €3.8M; Apple €3M; Microsoft €2.7M; Booking.com €1.45M).

But there are a handful of designated platforms that aren’t paying anything in the first round as they reported a loss during the preceding financial year — including Amazon, Pinterest, Snapchat and Wikimedia.

The DSA puts an overall cap on the level of annual fee the EU can charge VLOPs/VLOSE — which cannot exceed 0.05% of the worldwide annual net income of the preceding financial year, per Article 43 of the regulation. (In Meta’s case, the company’s full year 2022 revenue was $116.61BN, implying a maximum possible fee of ~$58.3M — well below what we understand it has actually been charged under the regulation’s fee calculation mechanism.)

The EU says the existence of this cap means that if a company has reported a loss during the preceding financial year it does not have to pay the fee. But of course it won’t be drawn into commenting on the effect of any ‘creative accountancy’, channel stuffing, tax planning or other tactics tech giants might deploy to avoid turning a profit on paper (and not have to pay this fee).

Meta’s legal challenge is focused on this component of how the supervisory fee is calculated, with the tech giant arguing the mechanism is unfair since some companies with a lot of users but which report a loss do not have to pay.

“We support the objectives of the DSA and have already introduced a number of measures to help us meet our regulatory obligations but we disagree with the methodology used to calculate these fees,” said a Meta spokesman. “Currently, companies that record a loss don’t have to pay, even if they have a large user base or represent a greater regulatory burden, which means some companies pay nothing, leaving others to pay a disproportionate amount of the total.”

As well as taking into account the number of users and revenue platforms have, the EU’s mechanism for calculating the level of supervisory fee factors in how many days platforms have been designated across the year.

While on estimating its oversight costs, the law says the Commission must consider its human resources and other administrative and operational expenses.

Contacted for a response to Meta’s challenge, which is being brought at the EU’s General Court in Luxembourg, a Commission spokesperson said: “All Commission decisions are subject to judicial review. It is the right of companies to appeal. However, our decision and methodology are solid. We will defend our position in Court.”

“The differences in payment in the different fees are not comparable across providers due to the differences both in their business models, their market quotas, the number of services that they provide, as well as their net incomes which in some cases can be comparable to the GDP of mid-sized Member States,” the EU’s spokesperson added.

“The supervisory fee needs to reflect and be proportionate to the economic capacity of the provider. It is not meant as a penalty. This is because the purpose of fee is not to punish the VLOPs and have a deterrence effect (as it is for the fines, which are capped taking into account revenues), but for the regulated entities to contribute to the monitoring and enforcement without affecting their business operations and expenditure related to compliance. This means that if a company has reported a loss during the preceding financial year, it does not have to pay the fee.”

“Whilst certain VLOPs may have had negative net income in a relevant year for calculation of latest fees, these are exceptions which are scrutinized with the most care,” they also told us.

The spokesperson confirmed that all designated platforms “in question” honoured their commitments to provide the first tranche of fee payments by the end of December. But it’s worth noting three VLOPs avoided the fee this time as they were designated later than the others: Namely the trio of porn platforms which were designated as VLOPs late last year — which face their user and revenue numbers being crunched next time around.

The EU adopted rules on how to calculate the supervisory fee via delegated act back in March last year. The Commission went on to send the first wave of platforms it designated as VLOPs/VLOSE (April) an estimate of the supervisory costs divided between them (before the end of August). Decisions confirming the level of the fees were then taken in November — and platforms were required to make the payments to the Commission by the end of December at the latest.