It’s been a while since I’ve read as much tripe as I have this week, namely the plethora of articles (in fact little more than rehashes of the EU’s press release) hailing the eighth wonder of the world, the European Commission’s plans to create a pan-European framework for businesses.
‘EU Inc’, as the Commission likes to call it, is a fantastic (and much-needed) idea. A single, pan-European company registration, carried out entirely online for just 100 euros. Sign up, fill out an online form, digitally sign it and away you go, ready to trade in all 27 member states. Except you can’t.
Far from being a ‘28th jurisdiction’, EU Inc is likely to create more problems than it solves for those foolish enough to use it. For a start, businesses will still need a physical address in one of the EU’s member states. Were this a genuinely revolutionary idea, no address would be needed at all. We live in a digital world; why the need for 20th century relics such as addresses?
Even worse, an EU Inc is far from ready to do business in all 27 member states. Say your firm is registered as an EU Inc in Poland, but you want to hire some developers in Romania and Bulgaria. Well, to legally employ them, you’d need to set up branches (local Romanian and Bulgarian companies, basically) in order to do so, complete with local payroll and tax compliance. So much for being pan-European.
Want to open a chain of stores across the EU? You’ll still need separate legal entities in all the member states in which you operate, complete with separate tax and VAT registrations. So much for being pan-European.
“Any entrepreneur will be able to create a company within 48 hours, from anywhere in the European Union, and fully online,” said Commission President Ursula von der Leyen, as if you couldn’t already do that in several EU member states.
A genuine ‘EU Inc’ would look a lot different to what the Commission is proposing. It would be a single entity that could hire, fire, and set up shop in every EU member state. One tax number, one VAT number. One tax rate, one VAT rate. EU Inc is nothing of the sort. The hacks copy and pasting the Commission’s press release should know better. Or maybe they shouldn’t.
One cheer
The irony missed by the journalists who breathlessly reported the news is that the businesses most in need of something like EU Inc are precisely those for whom it will be least useful. Europe’s 26 million small and medium-sized enterprises account for around two-thirds of all private-sector employment and just over half of total value added, according to the European Commission’s own figures. They are, as Brussels never tires of pointing out, the backbone of the European economy. They are also the ones drowning in compliance costs, translation fees, and the peculiarities of 27 different legal systems.
Ask any SME owner who has tried to expand across borders and you will hear the same stories of bureaucratic logjams. A software firm in Ljubljana wanting to take on a developer in Warsaw. A Tallinn-based logistics company opening a depot in Łódź. A Romanian marketing agency doing work for clients in Vienna and Amsterdam. EU Inc does not actually change any of the things that make cross-border expansion such a headache: local payroll registration, social security obligations, permanent establishment rules, VAT compliance. The 100 euros digital registration is the easy part.
For large companies with legal departments and compliance budgets, none of this really matters, it never has. They will muddle through, as they always have. Where EU Inc does have a genuine, if modest, use case is as a holding company structure, as a clean, EU-law-governed entity sitting above a constellation of national subsidiaries. For venture-backed start-ups wanting a straightforward structure that investors can recognise, that is not nothing. The harmonised employee stock option framework, if it works as advertised, could help European founders compete for talent without losing out to Delaware-incorporated rivals. One cheer, perhaps.
All dressed up and nowhere to go
But a holding company wrapper does not an integrated market make. The real barriers, the ones that actually stop a Polish engineer from working for a Slovenian company without triggering a local branch registration, or that require a Hungarian business to file separate VAT returns in every member state it operates in, remain exactly where they were. EU Inc papers over them, but does not remove them.
What would removal actually require? Tax harmonisation, for a start. Harmonised VAT rates. Common rules on employment and social security. A single labour law framework. These are, of course, the third rails of European politics: matters of sovereignty that member states have jealously guarded ever since the Treaty of Rome. The Commission knows this, which is why EU Inc carefully sidesteps all of it. National employment and social laws are explicitly not affected by the proposal, a sentence buried in the small print that rather gives the game away.
Von der Leyen’s 28th jurisdiction is a real idea dressed up in borrowed clothes. The clothes are neat enough. It is just that without the harmonisation underneath, there is nowhere to go in them.
Photo: Dreamstime.
