The General Court in Luxembourg ruled that regulators relied on the wrong legal procedure to calculate the levy, which currently stands at 0.05% of each company’s annual global net income. 

The methodology, judges said, should have been set through a delegated act rather than through implementing decisions. In other words, the Commission acted outside the precise legal framework of the DSA.

The judgment provides the Commission with a year to correct its approach, but importantly, it does not oblige regulators to refund the 2023 fees paid by Meta and TikTok. Both companies had argued that the formula was disproportionate and unfair, especially for platforms with large user bases but tighter profit margins.

In its reaction, the Commission downplayed the impact of the decision. A spokesperson stated: “The Court’s ruling requires a purely formal correction on the procedure. We now have 12 months to adopt a delegated act to formalise the fee calculation and adopt new implementing decisions.” 

Officials stressed that the ruling does not sabotage the principle of the supervisory fee itself, nor the amounts already collected.

The DSA, which came into force in November 2022, obliges very large online platforms to combat illegal and harmful content or risk fines of up to 6% of their global turnover. Compliance monitoring is expensive, and the supervisory fee is meant to fund that effort. 

The size of the fee is tied to two key factors: the average number of monthly active users and the financial results of the company in the previous year.

While Meta and TikTok led the challenge, other major platforms also fall under the DSA’s obligations. These include Amazon, Apple, Google, Microsoft, Booking.com, Snapchat, Pinterest, and Elon Musk’s X platform. All are classified as “Very Large Online Platforms” because they exceed the threshold of 45 million active monthly users in the EU.

The ruling does not cancel the supervisory fee, but it does underline the need for procedural accuracy in the EU’s enforcement of digital rules. Analysts say the result may complicate future enforcement if other companies decide to contest the Commission’s methods.

Following a mystery shopping operation led by the Commission, inspectors found that a number of items sold on Temu, including baby toys and small electronics, did not meet EU safety standards. Many of these items were direct threats to users, such as choking hazards, electrocution risks, and potential exposure to toxic substances. 

These findings were supported by the European consumer watchdog BEUC, which has long raised alarms about the unchecked inflow of unsafe imports via online platforms.

The Commission concluded that Temu’s October 2024 risk assessment was both flawed and superficial. Instead of analysing data specific to its own operations, Temu allegedly relied on vague, industry-level information to justify compliance. That approach, the Commission noted, is not acceptable for a platform with the scale and influence of Temu.

“The evidence showed that there is a high risk for consumers in the EU to encounter illegal products on the platform,” the Commission stated. “Specifically, the analysis of a mystery shopping exercise found that consumers shopping on Temu are very likely to find non-compliant products among the offer, such as baby toys and small electronics.”

Temu, which is classified as a Very Large Online Platform (VLOP) under the DSA, is subject to stricter regulatory expectations, particularly around product safety, algorithm transparency, and user protections. These platforms are not only required to remove harmful content and goods quickly but must also actively mitigate systemic risks on their platforms.

If the preliminary findings are upheld, Temu could face a fine of up to 6% of its global annual turnover, a penalty that could easily exceed $1.5 billion, given the financial muscle of its parent company, PDD Holdings. This would represent one of the most forceful enforcement actions under the DSA since its implementation.

In response to the Commission’s findings, Temu in an official statement said, “We will continue to cooperate fully with the Commission.”

Before now, EU also flagged the platform’s gamified shopping experience, pointing to potentially manipulative features such as fake discounts, time-limited rewards, and addictive design patterns aimed at encouraging compulsive buying. 

These dark patterns, tactics designed to nudge users into decisions against their best interest, are being investigated for violating transparency and ethical standards under EU law.

Furthermore, regulators are probing how Temu’s recommendation systems work. The core question is whether the platform gives users the option to receive non-profiled suggestions, an essential requirement under the DSA designed to protect user privacy and prevent algorithmic exploitation.

The EU’s investigation into Temu puts it in the same regulatory spotlight as other China-based platforms such as Shein, AliExpress, and Wish, all of which have been warned for allowing the sale of unsafe products and employing manipulative design features.

In parallel, EU policymakers are also debating the removal of the €150 duty-free threshold for imported parcels. This change would hit Temu’s core business model hard, as the platform thrives on high-volume, low-cost deliveries that currently escape import taxes.

For now, Temu has a limited window to respond to the Commission’s findings before a final decision is made.