‘EU Inc.’ Measure Offers Only Minor Medicine for a Major Malady

The “EU Inc.” bill is much ado about little, at best helping solve basic problems that only scratch the surface of why innovative EU-based companies find it so difficult to survive infancy, let alone thrive in maturity.

The European Union measure is the latest in a series of overdue attempts to untangle such bureaucratic tangle of “stacking” tax and legal regulations on companies headquartered within the bloc.

The 28th Company Law Regime, better known by its sleek EU Inc. moniker, was proposed by the European Commission as a solution to the smothering administrative burden which has become the birthright of budding European Enterprises. Its most important provisions include:

• Fast and inexpensive digital corporate registration in less than 48 hours and for less than 100 euros
• No minimum share capital requirement for incorporation
• Digital corporate processes, including board meetings, throughout the company’s life
• Unified data submission process for tax, value-added tax, and other registrations
• A bloc-wide approach to taxing stock options (once, at the time of disposal)
• Digital wallets for interacting with public authorities and stakeholders across the bloc
• Digitized and streamlined liquidation and insolvency processes

The proposed overhaul is optional, aimed at giving startups and scaling companies an opportunity to deal with a single set of harmonized rules, rather than the current patchwork of “Twilight Zone”-style “similar but not quite” jurisdictional laws and regulations.

The bill comes with the backdrop of increasingly loud calls for the EU to curb its worst instincts of approaching any tax-related challenge with a regulatory solution. Proponents tout it as complementary to similar efforts to simplify calculation requirements under Pillar Two.

Meanwhile, similar harmonization efforts on the EU’s agenda remain stalled, including member countries’ approach to digital service taxes. Given the lackluster progress made on Pillar One, which is also beset by outward antipathy from the US and other large economies toward reallocating taxation rights via initiatives such as BEPS Pillar One, EU countries are likely to persist in their pursuit of unilateral DSTs.

At the same time, the quietly abandoned transfer pricing directive of 2025, intended to unify transfer pricing compliance obligations, hangs like a specter over the EU’s credibility in harmonization initiatives more ambitious than the limited aims of EU Inc.

EU Inc. is directed mainly at startup companies that fall well below the BEPS thresholds, but the idea is to give such companies a better shot at making it to BEPS size in the first place.

This is admirable, but the scope and scale of the bill’s provisions fall woefully short of making any meaningful progress in that direction. For example, the proposed rules on taxing stock options at disposal would give companies opting into the harmonized regime some degree of tax certainty in the cross-border context.

However, any benefit from the deferral may, upon receipt of the EU’s minimum-tax gift to corporate adolescence, simply be clawed back by Pillar Two’s top-up tax mechanism. Meanwhile, truly successful startups may join their peers under the fragmented umbrellas of various national DSTs, which nothing in the EU Inc. bill does anything to mitigate.

The EU’s current legal, tax, and market framework disproportionately hit very young, innovative firms. EU startups are “born” into 28 company law systems with dozens of legal forms, different incorporation rules, capital requirements, and notarization obligations.

The fixed legal costs of setting up a business consume scarce founder time and capital before products and solutions can hit the market. Further, EU regulation often frontloads compliance rather than scaling it with firm maturity. The complex regulatory and administrative burden slows product development and raises the cost of failure.

Europe’s innovation deficit isn’t down to idea creation, but early survival and scaling. Venture and growth capital markets remain fragmented and shallow, especially compared with the US. Pension funds and institutional investors face regulatory constraints that limit venture capital participation.

As startups grow, they must often relocate outside the EU or face regulatory strangulation. In addition, the tax system penalizes the very tools startups rely on. Employee stock options are taxed inconsistently and often unfavorably across member states, and the tax bases under overlapping regimes (BEPS and DSTs included) are inconsistent at best and incomprehensible at worst. These pitfalls require deep and decisive action far exceeding what EU Inc. is offering.

Without a more serious and concerted effort by the EU and the OECD, businesses in the bloc will continue to find themselves beset by an entirely new, and equally perilous, set of regulatory burdens. Raise a glass to the spirit of EU Inc., but greet the hype surrounding it only with the grains of salt on the rim.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Chad Martin is a principal of transfer pricing services at Eide Bailly.

Caroline Fontes is a senior manager of transfer pricing at Eide Bailly.

Write for Us: Author Guidelines