Meta and TikTok challenge tech fees in second highest EU court

Meta and TikTok are challenging the EU's Digital Services Act supervisory fee in the General Court, arguing that the 0.05% levy on annual worldwide net income is disproportionate and based on flawed calculations. Meta's legal team claims the fee calculation lacks transparency and unfairly uses group revenue instead of subsidiary revenue, while TikTok alleges the Commission used inaccurate figures, discriminatory methods, and double-counted users, leading to inflated fees. The European Commission defends its methodology, asserting that group profit is a valid reference for calculating the fee, with a ruling expected next year.

Analysis

Meta Platforms (META.O) and TikTok are legally challenging the European Union's supervisory fee, mandated under the 2022 Digital Services Act (DSA), in Europe's second highest court. The fee, amounting to 0.05% of annual worldwide net income, is intended to cover the European Commission's costs for monitoring compliance. Both companies contend the fee is disproportionate and based on a flawed methodology. Meta argues the Commission's calculation lacks transparency, was based on group revenue rather than subsidiary revenue, and has led to "implausible and absurd results," though it states it is not trying to avoid its fair share. TikTok similarly criticized the fee as neither "fair or proportionate," alleging the use of inaccurate figures, discriminatory methods including double-counting users across devices, and that regulators exceeded their authority by basing the fee cap on group profits. The European Commission defended its methodology, asserting that group profit is a legitimate reference as the group's financial resources support the service provider, and that companies had sufficient information regarding the calculations. The sentiment surrounding this development is mildly negative, reflecting the legal contention and potential financial implications. A ruling from the General Court is anticipated next year, which will clarify the application of these DSA supervisory fees.

Key Decisions for Investors

• Investors should monitor the outcome of cases T-55/24 and T-58/24, as a ruling against the companies could solidify the 0.05% annual worldwide net income fee, impacting Meta's operating expenses, while a favorable ruling might reduce future regulatory cost burdens.
• Consider the precedent this case may set for other large tech companies operating under the DSA, as the court's decision on fee calculation methodology (group vs. subsidiary revenue, user counting) will have broader implications for regulatory costs in the EU.
• Factor in the ongoing legal and regulatory risk for Meta in the EU, as this challenge highlights persistent scrutiny and potential for increased compliance-related expenditures, which could affect profitability projections.