21.9.2015

Disruptive Internet Services Face to Face With Finnish Law

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Data & Technology

New innovative internet services, like Uber and Airbnb, have triumphed in many countries and are now also finding their way into Finland. Although these services and the new business opportunities they bring have been given a warm welcome by many, the Finnish authorities and the more traditional industry players have been more reserved.

On the other hand, the renowned Bengt Holmström, Professor of Economics at Massachusetts Institute of Technology (MIT), has said that ‘the Internet, robots and the digitalisation of business are like laws of nature. Their development cannot be prevented. The more we deny new business models, the more we will fall behind’ [1]. Instead of being given the opportunity to flourish, these new services are sometimes seen as troublemakers, and seem to have hit a tightly knit web of laws and regulations hindering them in this country.

In this post we discuss two of these ‘new kids on the block’ and the legal hurdles they have found themselves facing in Finland.

Uber

Uber provides a service that connects customers in need of a ride with available drivers via a smartphone app. In Finland, this great innovation has faced strong opposition as the authorities have found it hard to fit Uber into the classic and heavily regulated taxi service model.

As in some other countries, operating a taxi in Finland requires a license. Only a restricted number of taxi licenses are available, and room for newcomers is very limited. The problem with Uber appears to be that the Finnish authorities have a hard time establishing whether the service Uber provides is to be classified as operating a taxi and, therefore, requiring a license.

According to Uber itself, it is not a taxi service, but only provides a platform for ride sharing. Regardless of the ambiguity regarding the nature of Uber’s service, the Finnish Taxi Association has stated that drivers with a valid license have been urged to report Uber drivers to the authorities.

Lately even the Finnish police asked the public to report Uber drivers to the police. This is due to an ongoing investigation in which the authorities are trying to establish whether or not Uber is in breach of Finnish taxi legislation and driver safety requirements. Instead of actively rethinking the passenger transport business and considering the benefits of more flexible services, the authorities seem to be more willing to deny Uber’s business entirely.

Airbnb

Uber is not alone in its struggle with the tight web of Finnish laws and regulations. Airbnb, which provides an online platform for people to rent out properties to others in need of short-term accommodation, has also come under the all-seeing eye of the Finnish authorities, who see Airbnb’s operating model as some shade of grey in legal terms.

At the moment, the authorities are trying to decide whether it is a temporary rental to help offset vacation costs, whether it subletting or whether it is an accommodation business – all three possible interpretations are firmly regulated.

The Finnish Hospitality Association, MaRa, has demanded that the same tax liabilities and the numerous regulations that apply to other service providers in the accommodation business, such as hotels, should also apply to Airbnb. According to MaRa’s argument, Airbnb has an unfair competitive advantage otherwise.

In addition, residential buildings – generally organised in Finland as a special type of limited liability company that residents own shares in – are considering whether they could and should prohibit short-term rentals in their articles of association because of the possible disturbances travellers might cause.

These Services are Here to Stay

Digitalisation is not a new topic in Finland. Even the new government’s platform underlines the importance of digitalisation. However, new and innovative services are often not welcomed with open arms in practice.

Finns want these new services and the benefits they bring in terms of new business opportunities, cheaper consumer prices and more options to choose from. Keeping in mind the relative small size of the Finnish market, none of these benefits are self-evident and new business models enabling them should be encouraged rather than weeded out.

Indeed, instead of building legal barriers to their development, we should be breaking down old barriers and looking ahead. Fortunately Bengt Holmström sees that there is hope in Finland. As encouraging examples Holmström mentions software companies, the video game industry, Slush and the whole Finnish startup scene.

The best way to face the challenges of digitalisation is to actively take part in it and find new ways to support it instead of fighting against it.

[1] http://www.hs.fi/talous/a1439870365925