Commercial Awareness Update – W/C 2 May 2022

New Regulations Proposed In Attempting To Tackle Fake Reviews

Background

The Government has recently revealed plans to make it “clearly illegal to pay someone to write or host a fake review.”

Fake reviews have been under surveillance by the Competition and Marketing Authority (CMA) as far back as 2015. “Troubling evidence” was previously discovered with 100 listings on eBay offering reviews for sale. Fake reviews play a significant role in boosting or slandering companies, increasing competition unfairly, and manipulating and disappointing customers.

Businesses who write positive or negative reviews about themselves or others could be investigated by commissions such as the CMA. Writing a fake review can fall under unfair commercial practice provided by The Consumer Protection from Unfair Trading Regulations 2008. Fake reviews breach professional practice and presumably manipulate a consumer’s economic behaviour. According to The Internet Law Centre, it is unlikely for the authorities to prosecute businesses who write fake reviews as it appears to be low in their priority list. Businesses have to be held accountable for exploiting consumers due to the doubt customers now feel.

Fake Reviews: A hindered relationship between businesses and consumers

Andrea Coscelli claimed that genuine reviews were as crucial as ever as people’s reliance on internet shopping grew. This reliance, coupled with the fact that the Government found the average  UK household spends around £900 each year influenced by online reviews after assessing the cost of living crisis. The outbreak of COVID-19, the implementation of lockdown rules and the considerable use of e-commerce has increased the demand for online shopping.

Since the pandemic, Amazon made over $26 billion in profits thanks to the 50 million subscribed Prime members. Both businesses and sellers have taken advantage of a synchronous growth between online purchases and fake reviews. A survey conducted by the CMA has shown distrust from customers from a poll between 2,000 people showing the following results:

• 7 out of 10 had experienced misleading online practices
• 85% believed businesses using them were being dishonest with their customers
• 83% were less likely to buy from them in the future

February 2022 saw Amazon trying to combat the issue of fake reviews to restore consumers’ faith and feel safe about buying products based on legitimate reviews. Amazon took legal action against AppSally and Rebatest in the US after finding a combined 900,000 members were willing to write fake reviews in exchange for money. Amazon attempts to claim damages and an injunction from both companies to exclude them from selling or facilitating the sale of Amazon reviews.

Measures to tackle fake reviews

Proposals include giving the CMA authority to grant compensation to consumers and directly impose penalties for the following:

• breaking consumer protection laws, with penalties worth up to 10% of global annual turnover for businesses or up to £300,000 in the case of an individual
• breaching undertakings given to the CMA, with penalties worth up to 5% of a business’s annual global turnover or up to £150,000 for an individual, and additional daily penalties for continued non-compliance
• non-compliance with an information notice, concealing evidence or providing false information, with penalties worth up to 1% of a business’s annual global turnover or up to £30,000 for an individual, and additional daily penalties for continued non-compliance

However, Kate Nicholls, Chief executive of UKHospitality, hopes that whilst the new law intends to safeguard consumers, businesses should not encounter any unnecessary burdens. The new legislation will soon make its way into Parliament to decide whether to pass these measures as law.

This article was written by Clarissa Maglinao

The Ramifications Of The Income Tax Reduction On Gift Aid

In his Spring Statement on 23 March 2022, Chancellor Rishi Sunak announced the first reduction in income tax in 16 years. He announced that the basic income tax rate will be reduced from 20% to 19%, or £0.20 to £0.19 for every £1 earned from April 2024.

He lauded the mandate behind this reduction as keeping in line with the promise of a ‘tax–cutting’ government and elucidated the 1% reduction equated to £5 billion in tax cuts. Furthermore, he stated that the simple reasoning behind the tax reduction is that the general public becomes wealthier due to higher earnings retention.

However, this reduction directly impacts charity income, more precisely, Gift Aid donations. Gift Aid works by charities reclaiming the 20% income tax already paid by a tax-efficient donor from HMRC. The donor is not charged for any donations made through this scheme, so long as the basic income tax rate is paid and the donation is from personal funds. Therefore, the reduced income tax rate adversely impacts the amount of reclaimable tax from HMRC.

Charities were subjected to a tumultuous preceding few years in sourcing vital funds to facilitate their sometimes life-saving but always essential work. For instance, in 2018/2019, the income growth for charities slowed down, with growth recorded at just 1% to £56 billion, and causative to the covid pandemic, a quarter of charities lost 40% of their income from 2019 to 2020.

Currently, the estimated worth of the Gift Aid scheme to UK charities is between £1.3 and £1.5 billion. The 1% basic income tax reduction roughly equates to a loss of £250 million to charities over three years. The eventual imposition of further limitations owing to reduced income on already scant budgets and scarce resources almost certainly translates into additional hardship for already deprived communities.

However, the government noted the adverse effect the reduction in income tax would have on charitable income; therefore, in attenuating the negative impact of the tax reduction, the government introduced a three-year transitional relief period, whereby the current income tax rate of 20% will be maintained until April 2027, a measure which will be situated in a finance bill later and closer to the changeover, with Richard Bray, the chairman of the Charity Tax Group, stating that ‘the proposed transitional relief will safeguard over £250 million of charity income.’

Charities were especially welcoming of this measure because when the last reduction in income tax took place in 2008 and under the Brown ministry, there was no relief period, and charities had to campaign for a transitional relief period to apply and which eventually was.

Additionally, charitable giving, not necessarily through Gift Aid, may increase with higher retained earnings, and charities may not be at such a detrimental loss. However, the cost of living is growing at an unprecedented rate and exponentially so, given the financial implications of the pandemic, Brexit, and the government’s support of Ukraine. Therefore, it may be that the reduction in the basic income tax rate may not produce the effect so lauded after all, and thus the uncertainty about how the charity sector procures income after the end of the transitional relief period remains.

Nonetheless, it remains to be seen whether the current government, should they stay at the helm, honour the income tax rate cut and, in doing so, stay the measures to safeguard charity income.

This article was written by Aqua Koroma

The Scope and Impact Of The Digital Markets Act

On 15 December 2020, the European Commission adopted a proposal for the Digital Markets Act (The DMA, otherwise known as the Regulation of the European Parliament and of the Council on contestable and fair markets in the digital sector).

The Act aims to prevent market distortion by intercepting and correcting anti-competitive behaviour by monopolists, so called ‘gatekeepers’ of core platform services to include search engines and social media networks, thus enabling access for smaller companies and new entrants into markets and procuring competitive prices for consumers. Effectively, the Act seeks to undermine the dominance of monopolists in their market share and profits.

According to the European Commission, gatekeepers are said ‘to act as private rule-makers, and that can function as bottlenecks between businesses and consumers.’

‘Bottlenecking’, a not so distant relative of the essential facilities concept, is a type of anti-competitive behaviour in which a dominant corporation, in terms of market share, creates a high demand to low supply ratio of a critical facility it owns to prevent competitors, from entering the same market, and conduct which typically affects smaller competitors. This prevention of entry into a market is deemed an abuse of a dominant market position, a practice expressly prohibited by EU competition law.

Therefore, in preventing such abuse of position, the DMA dictates qualitative and quantitative criteria used to identify and define the targeted gatekeepers as follows:

Qualitative criteria

• The corporation has a significant impact on the internal market;
• It operates a core platform service which serves as an essential gateway for business users to reach end users; and
• It enjoys an entrenched and durable position in its operations, or it is foreseeable that it will enjoy such a position in the near future.

Quantitative criteria

• The corporation’s undertaking to which it belongs achieves an annual EEA turnover equal to or above EUR 6.5 billion in the three preceding financial years, or where the average capitalisation or the equivalent fair market value of the undertaking to which it belongs amounted to at least EUR 65 billion in the last fiscal year, and it provides a core platform service in at least three Member States;
• It provides a core platform service that has more than 45 million monthly active end users established or located in the Union and more than 10,000 yearly active business users established in the Union in the last financial year;
• The thresholds clarified in point (b) were met in the three preceding financial years.

Impact on messaging platforms

It is apparent that the criterion applies to the behemoths of social media and search engines, namely Facebook, WhatsApp and Google.

According to the EU, the applicability of the DMA means such giants must now ‘open up and interoperate with smaller messaging platforms, if they so request’, which means the possibility of cross-messaging across different platforms.

However, permitting cross-messaging is not as straightforward as one of the primary selling points of such platforms is the end to end encrypted service, which prevents third parties from accessing private data whilst it is in transmission from one device or system to another.

According to cryptographers, the DMA, in pushing for interoperation between platforms of all sizes, threatens the privacy and security of users of larger platforms as these corporations must suspend their end to end encryption services to allow for cross-communication across multiple protocols.

Furthermore, no two cryptographic platforms are the same. It is currently impossible to reconcile two platforms with different encryptions and storage capabilities without making additional, substantial and costly changes. Consumers may likely bear some of the costs initially borne by the companies in making these changes.

It is feared that consumers having to pay for access to these services may be potentially counterproductive to the aims of the DMA; nonetheless, the steps taken by monopolists in acceding to the requirements of the DMA facilitate the DMA’s primary objective as such gatekeepers will be forced to give way to new entrants and smaller competitors to the core platform services market.

The DMA becomes law sometime between October and November 2022, and most provisions are applicable from April 2023 onwards. Although the DMA will not directly affect the UK, it will affect UK businesses that provide services to the EU. Furthermore, UK businesses ought to take heed that fines for non-compliance are up to 10% of a company’s annual global turnover for a single offence, 20% for repeated violations or periodical penalty payments imposed by and payable to the Commission.

This article was written by Aqua Koroma