There is a movement organized by the main Brazilian retailers that is likely to lead to a series of actions against online marketplaces that, in their view, sell counterfeit items and or without the proper collection of taxes. The focus is on foreign companies that bring products from Asia, through cross-border online commerce, or across platform borders, Valor has learned. Those companies rebut criticism and already have lines of defense to react to this move.
The meetings on the issue have been led by the Retail Development Institute (IDV), which represents 75 retailers, such as Americanas, Casas Bahia, Magazine Luiza, Renner and Riachuelo. Last week, there was a virtual meeting with at least 50 associates to address the tax impact of evasion and discuss aspects in which “judicial and administrative proposals” against the platforms are viable, according to IDV material presented at the meeting.
Sources say that there is a long-standing discomfort of the chains with the operation of groups such as Aliexpress and Alibaba (based in China), Shopee (part of Singapore’s Sea Group), Wish and Shein (based in the U.S.), Mercado Libre (based in Argentina), and OLX Brasil, with 50% of the business in the hands of South African Naspers. The decision to harden the tone came from the growth of the activity of these companies in the country, say sources.
The material, prepared with the support of McKinsey consultancy and Mattos Filho law firm — and obtained by Valor — mentions, as main areas of action, competition, tax, criminal, consumer relations and the Civil Rights Framework for the Internet.
Regarding the competition aspect, the IDV is considering filing, in the coming weeks, representation at antitrust regulator CADE, alleging violation of the economic order by foreign platforms. This topic is controversial and former CADE advisers are divided on the hypothesis of success in the strategy.
A meeting with the National Council for Combating Piracy (CNCP), of the National Consumer Secretariat (Senacon), linked to the Ministry of Justice, must still be requested this month. The idea is to present the institute’s study to the CNCP. “There have already been contacts with high levels of the government, informally, and with state leaders to see if there is room to work on changes in state legislation, on tax collection by marketplaces. We’ll start with CADE and then strike harder to change the law,” says the head of one chain.
“Only 5% of shipments were inspected by customs in 2020 and 7% of shipments are effectively stated. In other words, there is a flood of products that enter the country without any analysis, and this increased even more after the pandemic,” says a source close to IDV.
“As the purchase of up to $50 is exempt from import tax, informal shopkeepers or individuals buy from other informal stores, up to this limit of $49.99 per package to avoid inspection”, says the source. “Thousands of packages arrive up to this limit, further favored by the free shipping offer offered by these platforms”.
A proposal being analyzed by the retail chains is the issuance of tax receipts, by the Individual Micro-Entrepreneurs (MEIs), in the sale to individuals. This is only mandatory when selling to companies. But a change would have to involve the general law on micro and small companies.
Another path for IDV is to work with state lawmakers to pass a law that assigns to marketplaces joint liability for tax disputes of their sellers regarding the payment of sales tax ICMS. Some states already make them responsible through specific legislation, but the idea is rejected by platforms outside Brazil because they consider they are only intermediaries in the sale.
The text being discussed still mentions acting on the change in article 19 of the Civil Rights Framework for the Internet, which deals with freedom of expression. According to the article, an internet provider can only be held civilly liable for damages resulting from content from shopkeepers if, after a court order, it fails to take action.
For the IDV, the text is being used in a distorted way to exempt the online marketplaces from responsibility, and the platforms, in turn, say that it is about freedom of expression (of publishing content).
As it is an election year, retail chains linked to the IDV told Valor that they do not believe there is room to put the entire agenda on the table of the federal and state governments today, so the path followed now would be to toughen the demand for greater customs controls, and in greater pressure on states and on regulatory agencies, such as telecom regulator Anatel, which can fine companies. A source close to the Ministry of Justice says that these inspections have grown since the pandemic, as well as the approximation between some websites and agencies, in the search for greater cooperation.
The IDV document calculates a tax evasion of R$19 billion to R$20 billion in the sale of international retailers in 2020 — 80% to 90% of them are from Asia. In the Brazilian chains, this evasion ranges from R$4 billion to R$ 5 billion. There were 47 million orders from Brazilians to international stores, brokered by online marketplaces in 2020, says the document. It is as if one in five Brazilians had placed an order in the year.
For the foreign platforms, the issue is commercial. “They [Brazilians] are saying that because they are losing sales and, in a more difficult consumer environment, they do not have access to the competitive sellers base that others have. Because there are sellers that sell cheap items and within the law, as they have a lower cost structure abroad than in Brazil,” says the head of market relations at a Chinese website. “We are bringing to Brazilians thousands of stores that work correctly. Are there illegal products that pass through controls? Yes, but there is work to improve that.”.
Goldman Sachs estimated, in a recent report, that Shopee is expected to reach a 20% share of the Brazilian online market by 2025. Other analyst reports have highlighted Mercado Libre as the biggest competitor today for Magalu, Americanas and Via.
A point highlighted by three lawyers heard by Valor, focused on antitrust legislation, is the possible legal strategy of Brazilian retail chains. “If they claim unfair competition, this is a subject covered by the 1996 Intellectual Property Law, that is, it is something in the civil or even criminal sphere, and not in CADE,” says a former counselor at the antitrust watchdog.
“You can say that it is a violation of the economic order within a broader idea, as defined in article 36 of the law that structures the Brazilian competition defense system. And claim that tax evasion generates an asymmetry of competitive conditions and market imbalance. But CADE has already made clear, on several occasions, that it does not assess tax matters, even though it is necessary to analyze violations of the economic order,” says a lawyer with 23 years of experience in the area. Sought by Valor, CADE did not return requests for comment.
Local retailers and foreign platforms have had a series of differences for years, which became explicit in 2019, when the sector discussed a self-regulation guide, with Senacon’s direct intermediation. In this debate, foreign companies objected to holding platforms responsible for advertising counterfeit products, claiming freedom of expression. Shopee, Aliexpress, OLX, Wish, Shein did not adhere to the guide. Mercado Livre joined in 2021
In the end, the guide assigns responsibility for enforcing property rights only to the companies that own the products and brands. The IDV was in favor of co-responsibility, and the divergence resulted in tense meetings between the parties in 2019. On February 23 there will be a meeting at the CNCP, and the idea is to tell companies that those who do not act according to the guide’s recommendations or meet suggestions will have to leave it.
Sought by Valor, Mercado Libre says it supports actions to inhibit the entry of pirate and counterfeit products, and that invested $100 million in machine learning technology, which helps in the analysis of data and identification of wrongdoings. It also states that only 5% of the sellers in its base are not formal companies. “We’ve formalized 135,000 new small entrepreneurs since the pandemic, and that’s more [than the total number of member stores] in the IDV. So we generate income and jobs,” says Ricardo Lagreca, head of the legal department of Mercado Libre in Brazil.
According to him, the group has digitalized the control structure to identify “as much as possible” sellers and products. “About 95% of the write-offs we make are already automated.” Mercado Libre has been reinforcing, behind the scenes, sources say, that it cannot be compared to platforms without a local distribution structure and that do not generate employment or tax payments. And they don’t see themselves as a foreign operation.
According to Mr. Lagreca, R$1.2 billion in taxes were collected by the group in 2020, and this year it will be “almost twice as much”. The platform had R$48 billion in transacted value in Brazil. The company said last year that from January 2020 to July 2021 an internal brand protection program allowed the deletion of about 30 million irregular ads — there are 360 million ads in the database.
Shopee says it has “proactive screening measures” to identify violations and “provides procedures” for brand owners to request removal of infringing listings. It says that “it is committed to helping small and medium-sized companies grow and prosper online”. Shopee states that more than 85% of its sales are from local sellers, and that selling counterfeit or intellectual property infringing items is prohibited and requires sellers to follow local laws. “Our team in Brazil serves more than 1 million registered local sellers,” it said in a statement.
Shein says it “operates and will continue to operate in compliance with all local laws within its business operations.” Wish did not return requests for comment. OLX states it helps in the development of the country and provides a space to users “always respecting the terms and conditions of use”, with direct negotiation between seller and buyer. According to the company, there are free advertisements and its revenue comes from optional spaces to highlight the offers.
OLX also informs “it welcomes initiatives that promote a healthy environment of competition and any measure that helps in the fight against illicit practices,” and understands that there are always improvements that can be implemented in the sector and in the legislative environment. It acknowledges that the “IDV plays an important role in the discussion of improvement measures and says it is available for a conversation with the institute”.
Sought by Valor, IDV confirms that there is an internal study on the subject, but does not comment on actions in progress.
Source: Valor International