By Wester Van Gaal, Amsterdam, 13 February 2025, 10:02:05

Law professor Matthias Lehmann: “A European corporate framework would encourage more companies to incorporate in the EU, keeping tax revenue in Europe rather than flowing to offshore jurisdictions” (Photo: Giammarco Boscaro)

Anybody who has ever tried to read EU legislation knows it's frustratingly complicated. And if you've tangled with Brussels bureaucracy, (hey, Horizon Europe), you know it's a bewildering mess.

There is a reason for this headache: when 27 member states hammer out political compromises, clarity often gets lost.

Yet EU offcials and national governments are increasingly convinced that, to stay competitive on the global stage, rules must be simpler.

In January, the new(-ish) commission responded by announcing an “unprecedented simplification effort,” aiming to cut regulatory “burden” for companies by 25 percent across the board.

But the commission may be missing the point. Leaked documents of the upcoming “omnibus simplification package” suggest the EU's green reporting rules will be “heavily watered down.”

The leaks have sparked concern among policymakers and campaigners, who argue that the commission's use of ‘simplification' is merely a euphemism for deregulation.

And earlier this month, investors managing €6.6 trillion in assets, warned that fewer rules doesn't make for simpler legislation, and could even end up “undermining” competitiveness.

Genuine simplification

The question this raises is: what constitutes genuine simplification? One idea that seems to come closest is a proposed European law for businesses, dubbed the “28th regime”.

For companies, it would mean freedom from the maze of 27 different rulebooks, replacing them with one clear EU-wide playbook – something start-ups have been dreaming of for years.

The idea recently resurfaced when Italian former prime minister Enrico Letta published a report on the EU single market, describing it as a “longterm project.”

How long isn't exactly clear. According to the current commission schedule, a first proposal is due by the end of this year or the start of the next. But implementation won't be easy, and adding another layer of rules could easily backfire, creating more complexity rather than less.

To dig deeper into both the promise and the pitfalls, we turned to Matthias Lehmann, a law professor in Vienna and Nijmegen.

In a 2020 paper he argued that the 28th regime is both “necessary and feasible,” to replace existing EU regulation which is often “complex, disordered and obsessed with detail” with a more “concise, structured and readable” type of legislation.

Independently from the commission, and together with the French legal association Henri Capitant, Lehmann and a team of legal experts drafted a version of European business law in 2017 – one that could potentially be lifted straight into EU legislation.

EUobserver: The 28th regime sounds like a pretty good idea. But how does it work in practice? Wouldn't it create a tug-of-war with existing national laws?

Lehmann: The 28th regime adds another layer of rules. But as an option.

If this option is chosen, then generally within the scope of the regime – and this is very important – the regime should exclude the application of national law.

Now, that may seem quite new, innovative, and groundbreaking, but it actually isn't, because we already have at least two different types of companies that operate under a 28th regime.

Which ones?

One is the Societas Europaea (SE), which is already chosen by many big companies, like Airbus, LVMH or Porsche. It interacts with national law in the sense that you can get around many national rules, but remain submitted to European rules.

The other is the European Cooperative Society (SCE), meant as a model for cooperatives.. The idea [established in 2006] was that cooperatives are also a great way to organise a company, in a way that is less capitalist and a little more collaborative. Unfortunately, it didn't really take off.

So why do we need a 28th regime?

The big corporations have the Societas Europaea, which is designed for public companies that issue shares. What we propose, and the commission says it needs, is something for small and medium-sized businesses.

Do you have an example of how it might help in practice?

Imagine a scenario where founders from different EU countries – say France, Germany, and Lithuania – want to create a tech startup. The German may resist using the French corporate form, the French may not want to use the German form, and the Lithuanian may be unfamiliar with both.

This can happen. We don't all understand each other's legal systems. In the past, companies often incorporated in the UK because English law was widely understood, or they chose Switzerland, for its well-translated legal system.

The idea behind the 28th regime is to provide a European alternative.

Wouldn't this create competition between legal systems?

It's not forced harmonisation; it's an optional system that businesses can choose if they find it useful. But you're right, there are trade-offs involved.

Many legal systems have idiosyncrasies – France, for instance, used to have a unique way of calculating interest rates for loans, while Germany has extremely strict rules on unfair contract terms. If everyone gives a little, we all gain – a larger, more harmonised, and easier-to-use market.

Could you give an example of how trade-offs may play out?

A simple example is minimum capital requirements. In some countries, like Germany, you need at least €25,000 to incorporate a company.

On the other end of the spectrum, English law traditionally required just one euro, a model now increasingly adopted elsewhere due to regulatory competition between states.

We have proposed a middle ground: €12,000. Some argue this is still too high for startups, but it's a perfect example of meeting in the middle.

This is the kind of compromise needed to make the 28th regime viable and get it approved by national governments.

What about taxes? If we are talking about streamlining the business environment, different tax regimes could affect the risk picture. What kinds of compromises would be necessary here?

Our proposal did not touch on corporate taxes at all. I was surprised to read that the commission is planning to harmonise tax law as part of the 28th regime.

Tax law falls into the member states' exclusive competence. I can't see member states agreeing to a regime that allows companies to reduce their tax burden simply by choosing a European corporate form. If that were possible, why would anyone pay taxes in their home country?

I'm absolutely in favor of tax harmonisation, but we considered it impossible to create a 28th regime that would apply to taxes as well, so it will be interesting to see what the commission will come up with.

It does seem like a 28th regime opens up possibilities for misuse. We live in a world where much of the financial system operates offshore – often outside European legal spaces. Does this regime mitigate the risk of legal loopholes, or prevent it?

The worst-case scenario is that it becomes a tool for bypassing national regulations. I'm not a tax law expert, but generally, a company pays corporate tax based on where it's incorporated. Trump wanted to lower it to 15 percent, while France has pushed for rates as high as 38.5 percent.

My hope is that if we establish a European corporate framework, more companies will choose to incorporate within the EU, ensuring more tax revenue stays in Europe rather than flowing to offshore jurisdictions.

The idea of a European business code has been around for at least 20 years. Why has it been so diffcult to implement?

Twenty years ago, the ambition was to create a European Civil Code. This would have harmonised private law across the EU, but member states rejected it, saying that it went too far and clashed with national legal traditions.

We're coming from a different angle and focus solely on business and commercial law, where the EU has clear legislative power. And by the way, the issue isn't just a matter of what the laws say, but how they are written.

Traditionally, European law was structured, principle-based, and easy to navigate. I admit, not everyone can read the German law. But the French civil code, for instance, is a pretty good read. Easy enough for laypeople to grasp their rights and obligations.

EU law today is spread over thousands of complex regulations that are hard to track down and understand, even for lawyers.

Why is this?

The EU legislates like a regulator, addressing problems with texts full of exceptions and special deals between member states. This makes the rules hard to find, hard to read, and, I suspect, hard to enforce – if no one knows what the law is, it's easier to ignore it.

That's why we believe in going back to basics: clear, structured, and accessible laws, like French, Dutch or Italian civil code.”

US law is infamously complex. You need a team of overpaid lawyers to decipher it. How does EU law compare?

I'd argue that common law systems tend to be even worse. That said, even the US – despite its tradition of complexity and case-by-case legal interpretation – has recognised that commercial law must be uniform.

They created the Uniform Commercial Code, a model law voluntarily adopted by all 50 states. It's not federal law but an effort by states to establish a common commercial framework.

Some states made minor amendments, but in general, it was a huge success. It ensures that if you conduct a commercial transaction in the US, the same rules apply in Nevada as in New York.

For us, this was an important precedent. If even the US, which lacks a codification tradition, can unify commercial law, then surely we can too.

Political, cultural and linguistic differences between EU member states are deeper. Do you see a risk that a 28th regime would suffer from an excess of compromise, resulting in more complexity, instead of less.

That's absolutely a valid point. That's why we set up our group as an independent initiative – outsiders not caught up in the political process.

We had no financial motivations, vested interests, or industry ties – just an academic perspective.

Despite our different backgrounds, we found common ground remarkably fast.

When this reaches the political institutions, we can be sure that won't be the case. If it results in a code that is overly complicated or rarely used, it will be useless. I hope that doesn't happen.

Author Bio

Wester is a journalist from the Netherlands with a focus on the green economy. He joined EUobserver in September 2021. Previously he was editor-in-chief of Vice, Motherboard, a science-based website, and climate economy journalist for The Correspondent.