Temu is used to accusations that from her appearance rain down. Already at the beginning of 2024, the European Toy Federation identified safety risks in 95% of children’s toys sold through Temu. The same as O German Consumers Associationwho has been warning about similar incidents for a long time and has already made a relevant reference to the platform last spring.

Since November, however, the pressure against Temu has increased. The EU is now taking legal action against the platform. The list of categories is long, with key issues being the importation of illegal products that do not meet EU rules. In addition, there are accusations of fictitious discounts, fake reviews, lack of merchant information.

What is Temu’s business model?

The online sales platform Temu made its appearance in the US in September 2022, aiming to provide Americans with access to Chinese products. Since then its development has been rapid at a global level. The low prices are mainly due to the fact that Temu acts exclusively as a middleman. Orders are shipped directly from manufacturers’ or dealers’ warehouses located in China. From these Temu receives a commission, which allows it to largely avoid storage costs. However, this also results in longer product delivery times.

Behind the app is the Chinese company PDD Holdings. PDD’s main platform is Pinduoduo, which is owned by the Chinese billionaire Colin Huang. Specific figures for Temu’s turnover and profits are not included in PDD Holdings’ balance sheets, and the company remains tight-lipped about its public disclosures.

Temu: Cool and optimistic

After Aliexpress, the EU is now targeting the Chinese platform, which is possible because Temu is classified as a “large platform” – a term that includes platforms with more than 45 million users, according to their claims. These fall under the Digital Services Regulation (DSA) and thanks to it the EU has also started the process.

A Temu spokesman told DW: “We will cooperate fully with the investigation.” Furthermore, they believe the research will benefit “consumers, merchants and the platform itself in the long run.”

Success through tax “tricks”?

Products worth less than 150 euros can be imported duty-free into the EU. Accountant Roger Gottmann believes that Temu’s business model is based on this very “duty exemption”, “A large part of the purchases through Temu are under 150 euros”. Without the duty exemption, Temu’s prices would not be so low.

Gothman, CEO of Taxdoo, an e-commerce management platform, believes that Temu is deliberately splitting the orders to stay below the €150 cap. Customs checks seem to confirm this practice. Although the duty exemption applies, a so-called import tax is imposed. Temu is registered in Ireland where it must declare and pay the relevant taxes.

However, according to Gothman, CEO of Taxdoo, locating the relevant data is complex and rarely audited. That is why he also proposes the strengthening of control and the application of the already existing laws. Upgrading the principles with modern analytics tools could also help. Abolishing the duty exemption is already on the agenda of the EU, which proposes to abolish the measure by 2028 and create a European data center to register all the information together.

Diligence: Chrysa Vakhcevanou