Significant opportunities for new players to enter fast-growing markets in the EU

EU law and guidelines on the sharing economy: overregulation should be avoided

By Dr. Thomas Grünvogel

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Introduction

Uber, Airbnb, DriveNow, Car2Go, Flinkster, BlaBlaCar and the like: Almost every day you read reports about these young companies in the newspapers – however, not always positive ones. Often, some of these companies have been publicly described as a cause for rent increases in large urban centers or responsible for ­destroying the taxi business. These ­startups, some of them worth billions and in part located in Silicon Valley, are also, however, seen as revolutionaries in the mobility and hotel industries. As such, they pose serious competition to established companies and serve as prominent examples of the “sharing economy” business sector, which has been growing for years.

Gross revenue for platforms and providers in the sharing economy in the EU was estimated to be €28 billion in 2015. This figure represents nearly double the amount seen the preceding year for five key sectors in the EU. According to estimates by some experts, the EU economy could increase from €160 million to €572 billion thanks to the sharing economy. This has led the European Commission to conclude that there are significant opportunities for new players to enter these quickly growing markets.

What is the sharing economy?

Anyone can participate in the sharing economy without great expense and earn money with their available capacities or resources. For example, private individuals on vacation would rent their apartments to other vacationers or a commuter would make available space to others in his or her car in exchange for sharing costs (ride sharing). Some large portals such as Airbnb and BlaBlaCar have already established themselves as providers of such services. Companies offering “sharing services” like the car-sharing services offered by BMW and Sixt (DriveNow) and Daimler and Europcar (Car2Go) directly, or at least indirectly, operate other platforms.

The basic idea of the sharing economy rests on a simple principle: Ownership is secondary while the mere possibility of use moves to the forefront. In one reflection of this, owning a car in an inner city is increasingly seen as a burden (hardly any parking spaces, high costs). This leads many people to purchase “mobility” through membership in one or several car-sharing platforms instead of owning a car.

Among other benefits, the sharing economy has led to more efficient use of resources than in the past, which many people link to an environmental dimension. Large cities are particularly burdened by air pollution generated daily by the huge volume of vehicles. Car sharing concepts, such as electric cars in Paris, appear to be the future.

Legal challenges for the sharing economy

Due to the increasing success of the sharing economy, calls have been growing for a legal framework. Recently for example, this has led taxi drivers in several countries to demonstrate against the drive service Uber as well as to the adoption of rules against the inappropriate use of residential space in a city like Berlin in order to curb the practice of renting out private residences over the Airbnb platform. In addition to the protection of participants using such services, other legal challenges include maintenance of public safety for the services offered in the sharing economy and, in particular, the mixing of private and business activities by the providers of the services. The European Commission expressed its view on regulating the sharing economy for the first time in a communication dated June 2, 2016.

It indicated that legal challenges still ­exist, especially in the following areas:

Market access requirements

Since participants in the sharing economy are active in markets where conventional service providers previously dominated, the question arises whether and, if so, to what degree platforms and service providers should be subject to market access requirements. This could include permits for business activity (for example, licenses for a taxi business), licensing obligations and minimum requirements for quality standards (for example, room size, types of vehicle, insurance and capital contribution obligations). In examining These areas, the European Commission’s intention is to establish a certain level of protection for users of the services provided by the sharing economy as well as level the playing field for conventional providers.

Under EU law, such market access requirements must be justified and proportional. The specifics of the business models and the relevant innovative services must be taken into account, and one business model may not be given preference over others.

Since the boundaries between private and business activity have become blurred, it is currently unclear when such requirements also relate to private individuals who offer services through a sharing platform. EU member states apply different assessment standards to determine the existence of a business activity. In the communication “European agenda for the sharing economy” dated June 2, 2016, the European Commission reported that some member states are planning to extend exemptions from licensing requirements to small-scale passenger transportation services that fall below a specific threshold of annual revenue. In the short-term accommodation sector, some cities permit temporary rentals and home-sharing services without prior authorization or registration requirements where the services are provided on an occasional basis – that is, up to specific thresholds such as less than 90 days a year.

Another question then also arises: Do the platforms themselves have to comply with market access requirements? Here, a determinative issue is whether the platform itself provides the underlying services or only acts as an intermediary. If the platform is only acting as an intermediary, the E-Commerce Directive, in particular, applies. In general, however, the platform is not subject to licensing or other requirements in terms of the services for which it acts as an intermediary.

Exclusion of liability for pure “hosting”

Sharing economy platforms can, under certain conditions, also be exempted from liability with respect to the information stored by them. Such an exclusion of liability can only be assessed in the particular case and depends on the legal and technical classification of the platform’s activity. If the platform’s role is purely technical, automatic and passive, however, much speaks in favor of its classification as a pure hosting service with a corresponding exemption from liability.

Protection of users

The EU regulations on consumer and marketing protection are designed to protect a “weaker” party. This is normally the consumer. If the service provider is a business (usually the case for car sharing), there is already sufficient protection for users in member states.

In the sharing economy, however, the service provider is not necessarily a business or a trader. Frequently (for example, rental of private residences), providers do not act in a commercial manner and are therefore themselves consumers. For this scenario, there is currently no adequate legal framework in place for consumer and marketing protection in terms of EU law.

Taxes and social security

Deficits also still exist in the areas of taxes and social security. Since the services on these platforms are frequently offered by private individuals, there is no assurance the tax authorities are sufficiently informed. Individual platforms in Germany already offer assistance (for example, by providing a VAT statement) and cooperate with the tax authorities.

Through the mixing of private and commercial activity, the boundaries between employment and self-employed activity are blurred. This area also requires further concretization by member states.

Conclusion

Revenue generated by the sharing economy will most likely continue to grow. As a result, the law must grapple with mounting challenges for the law and the innovative power of conventional competitors is being stretched. According to the European Commission, overregulation of the sharing economy should be avoided. Even if individual EU regulations (for example, those pertaining to consumer protection) apply to the sharing economy, legal deficiencies exist, in particular if private individuals offer services. With a view toward achieving uniform treatment of the sharing economy, EU member states should employ sound judgement and economic foresight to establish requirements where necessary. This is the only way for conventional providers and the sharing economy to successfully coexist as well as create synergy effects.

thomas.gruenvogel@cms-hs.com