The competition authorities oppose the inefficient regulation of disruptive new business models

Written on 23 Apr 2018

The competition authorities are taking a stand at both a national and regional level, against state and regional legislation that regulates in an inefficient manner and imposes disproportionate constraints on the disruptive economic activities of new entrants to the home sharing and vehicle rental with driver (VTC) markets.

Powers of the competition authorities

Among the many tasks that the legislator has entrusted to the competition authorities in Spain, is the power to challenge acts before the courts of public administrations which may hinder effective competition in the markets. Before going to court, the authorities usually issue a report in which they suggest to the state government or autonomous region in question, which issues they must eliminate or modify in order to remove the impediments encountered.

Within the context of these powers, we have witnessed heightened activity of the competition authorities to encourage and protect the development of new business models that can benefit consumers and users by offering them more and better alternatives for products and services, as well as more competitive prices.

In this article, we discuss two of the most recent interventions by the Spanish competition authorities. Firstly, that of the Spanish Competition Authority (CNMC) in relation to Royal Decree 1070/2017, which modifies the General Regulations on tax management and inspection actions and procedures and the development of common rules on tax application procedures, approved by Royal Decree 1065/2007 of 27 July, and Royal Decree 1676/2009 of 13 November, which regulates the Taxpayers Defence Board (RD 1070/17), and secondly, the Catalan Competition Authority (ACCO) regarding the draft metropolitan regulation on urban passenger transport services in rented cars with drivers (VTC) in the Metropolitan Area of Barcelona.

CNMC: Tourist housing and tax information obligations

As of July 2018, RD 1070/2017 (in force since 1 January 2018) obliges all intermediary companies that transfer housing for tourist use to provide information to the tax administration on rentals made (subscribed rentals, owner of the dwelling and identification of the assignee (person or entity). The tax administration argues that this is a measure to prevent tax fraud.

In contrast, the CNMC has requested the Government to remove or modify these reporting obligations as a preliminary step to avoid going to court. The main arguments put forward by the CNMC are as follows:

  • The RD does not clearly define who is obliged to provide this information.
  • The obligations imposed could have a negative effect on the performance of intermediaries causing a restrictive effect on competition.
  • Some aspects required are unnecessary and disproportionate for the intended purpose. Information as to the identity of the owner of the property is considered to have questionable tax relevance if this is different to the person who has the right to transfer it.

Without prejudice to this action of the CNMC, the Supreme Court has accepted an appeal filed by the association Adigital against the aforementioned Royal Decree and the ACCO has also issued a report rejecting the information obligations.

Both the CNMC, the ACCO and Adigital argue that such obligations may seriously distort competition and may force intermediaries to unjustifiably modify their business model to comply with the requirements of the Royal Decree.

ACCO: Draft VTC regulations for the Metropolitan Area of Barcelona

In the Metropolitan Area of Barcelona (MAB), a draft VTC regulation has been published that would limit the competition that VTC operators could have with the taxi sector through the following requirements:

  • Limit the VTC licenses that can circulate in the MAB to a ratio of 1 license per 30 taxis. The ACCO considers that the limitation of licences is highly restrictive on competition, given that it would not only prevent the entry of new operators, but would also drive-out many of those already present in Barcelona.
  • Establish a VTC register in the MAB, without prejudice to the existence of an autonomous VTC register. The ACCO considers that such registration would only duplicate the administrative costs of the operators by requiring them to register twice, which would be unnecessary if collaboration existed between the Generalitat of Catalonia and the MAB.
  • Requirement to have premises in the MAB in order to be able to carry out the VTC activity in this region. The ACCO considers that this requirement is unjustified and discriminatory, since this is not required for taxis for them to carry out their activity.

The ACCO considers that these requirements are not based on any overriding reason of general interest that justifies them. On the other hand, it considers that these requirements are designed to protect the taxi sector, and if they are maintained as contemplated in the project, we may witness the expulsion of VTC licensed operators from the market.

Furthermore, the ACCO considers that none of the measures adopted in the draft are proportionate or necessary and that protecting the profitability and demand of the taxi sector is not a valid objective, given that it does not protect public interest but rather that of the individual to the detriment of the consumer.

Conclusions

The power struggle we are witnessing between the status quo, represented by the legislators and the old "establishment", and the "creative destruction", represented by the competition authorities and the disruptive business models has taken place many times in the past.

It remains to be seen the direction in which this power struggle is resolved, whether it is towards a protectionist economic and legal model, or towards an innovative and creative model that takes advantage of limited resources in an increasingly populated world. Perhaps the future of the Spanish economy and the position it will occupy will depend on these disputes.