The EU finally seizes the opportunity to support the sharing economy?

Uber_logo.pngLast week, the much awaited response around the fate of the so-called “sharing economy” in Europe arrived from Brussels, and big players such as Uber and Airbnb can finally take a sigh of relief. On June 2 the European Union came up with a list of guiding principles for its Member States on how to “engage in the collaborative economy”, by also telling them it is determined to support it, and that times have changed.

Background

The list published by the European Commission last Thursday represents its initial findings after a year-long consultation and is intended to be a suggestion on how to ensure a fair and mutually rewarding treatment of sharing economy companies across the bloc. The “European agenda for the collaborative economy”, as the bureaucrats call it, indeed comes as a response to the many clashes and issues that many European cities and sharing economy companies had in the past twelve months, which have represented a big headache to Brussels.

Big backlashes

Despite a much warmer welcome in Member States like the UK, countries like France and Germany have experienced tough times, with also curbs and bans on companies like Uber and home-sharing site Airbnb in some of their major municipalities. The main complaint was that those businesses harm traditional industries such as taxi services and hotels, causing complaints of unfair competition. Berlin’s attempt to crack down on Airbnb hosts by introducing fines of up to €100,000 for people who rent out their entire apartments soon became a hot news, while the massive strikes by taxi drivers in Paris, which have disrupted traffic across all France, had an immense echo too.

The voice of the Commission

The European Commission is now determined to show that the times of overregulation are over. “Absolute bans and quantitative restrictions should only be used as a measure of last resort,” the Commission said in its official statement last week, veiling the message that too much restrictive measures won’t be tolerated anymore.

The Commission’s paper also said that companies in the sharing economy should not be subject to sector-specific rules – such as regulations aimed at transportation firms, for example, and that Member States should also differentiate between individual citizens providing services on an occasional basis and providers acting in a professional capacity. “Limiting the possibility for new transport operators to use new technologies, such as geo-localisation services, is one clear example of bad practices,” Reuters quoted European Union Transport Commissioner Violeta Bulc.

Commissioner Elżbieta Bieńkowska, responsible for Internal Market, Industry, Entrepreneurship and SMEs spoke about the big opportunity for European consumers, entrepreneurs and businesses that the sharing economy represents, underlining the importance of that the guidance by the European Commission. “Today we are providing legal guidance for public authorities and market operators for the balanced and sustainable development of these new business models”, she argued.

Not legally binding

Although not legally binding, the guidelines are the first attempt to set a comprehensive pan-European approach to the fast-growing sector instead of the “patchwork of different regulatory actions” adopted by European cities so far. “This fragmented approach to new business models creates uncertainty for traditional operators, new services providers and consumers alike and may hamper innovation, job creation and growth”, underscored the Commission in its official Statement last week. Indeed the approach that has been used so far has nothing to do with that “unity” model the EU is trying to reach.

Reactions from the businesses

Uber said the findings by the European Commission represent an encouraging step. “The European Commission has made it clear that EU laws protect collaborative economy services against undue restrictions, and member states should review regulations that undermine the development of such services,” declared Gareth Mead, Uber spokesman.

The guidelines were naturally welcomed by Airbnb too. The San Francisco, California-based company said in a blog post that the new guidelines will help ensure a “stable and consistent regulatory environment” for sharing economy users across Europe. “Europe has the potential to be the world leader for the collaborative economy”, Airbnb’s spokesperson added.

Big cake

And that is definitely true. The Commission has estimated that the major sharing economy platforms and providers have contributed about 28 billion euros ($31.7 billion) in 2015, and here’s the point: that’s not all. The total gross revenue of companies like Uber and Airbnb has doubled in the last twelve months, and the potential has been estimated to more than 500 billion euros. In 2016, a Eurobarometer poll showed that more than half of all EU citizens know about the collaborative economy, with one person out of six already being a user. Thus, the growth potential is currently immense.

PwC study

To better grasp the scale of the sector, a study by PwC on the sharing economy worldwide reports that Airbnb averages 425,000 guests per night, totalling more than 155 million guest stays annually, which is nearly 22% more than Hilton Worldwide. Five-year-old Californian company Uber operates in more than 250 cities worldwide and as of February 2015 was valued at $41.2 billion, a figure that exceeds the market capitalization of companies such as Delta Air Lines, American Airlines and United Continental. PwC’s projections show that five key sharing sectors – travel, car sharing, finance, staffing, and music and video streaming – have the potential to increase global revenues from roughly $15 billion today to around $335 billion by 2025.

Commission Vice-President Jyrki Katainen, responsible for Jobs, Growth, Investment and Competitiveness, seems very much aware of the potential of the sharing economy. “A competitive European economy requires innovation, be it in the area of products or services”, he said last week. “Our role is to encourage a regulatory environment that allows new business models to develop while protecting consumers and ensuring fair taxation and employment conditions”, he added.

Taxes knot

Commissioner Katainen was also clear on another big question between the EU and the sharing economy players. He indeed stressed that such businesses should not become a “parallel informal economy” operating with some kind of special or non-existing regulation. “It’s clear that the collaborative economy cannot be a way to abuse labour”, Katainen said, “neither is it a way to avoid paying taxes”, he continued.

“Collaborative economy service providers and platforms have to pay taxes, just like other participants in the economy”, the European Commission said in its statement. “Member States are encouraged to continue simplifying and clarifying the application of tax rules to the collaborative economy”, the Commission continued later, while collaborative economy platforms “should fully cooperate with national authorities to record economic activity and facilitate tax collection”.

Despite being still very “light”, the statement and the agenda by the EU represent a huge step forward in the regulation on the sharing economy, that frankly speaking we are not so much used to in Europe. For sure the various “battles” around the European cities won’t stop tomorrow, and all the petitions won’t be closed down in a few hours, but still the EU guideline is the first, concrete attempt by the EU of becoming a true modern regulator in the 21st century.

The EU has finally seen the opportunity by fostering the sharing economy model in Europe to support new start-ups in the new era of the European economy.

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