This analysis was first published in SvD Näringsliv, in Swedish, on October 19th, 2021.

The EU wants the European headquarters of tech companies to determine where they are regulated. But the proposal risks repeating the mistake of the tax havens — where individual countries now compete on legislation.

The nickname belongs to Denmark’s Margrethe Vestager. She is currently Executive Vice President of the European Commission, but previously held the post of Competition Commissioner. It was in that role that she fined Google more than €4 billion – about SEK 43 billion – in 2018 for breaches of competition law. All for abusing its strong position in the market for operating systems.

Vestager won that round, but in recent weeks the parties have been back in court. Google has appealed the ruling, and a spokesperson for the company told the news site Politico that “this case is supported neither by the facts nor by the law”. A verdict is expected sometime next year, though even that can be appealed one further instance.

The reason Google can keep challenging the legislation is that it is both unclear and fairly blunt. A major effort is now underway in the EU to clarify the law through two big initiatives – the Digital Services Act (DSA) and the Digital Markets Act (DMA). They are aimed at, for example, curbing monopoly formation and regulating tech companies’ use of data. The DSA and DMA are still being drafted and are not yet in force.

One big question is where the legislation should sit and how it should be enforced. The EU does not want to leave the laws in the hands of the United States, even though that’s where most of the tech companies come from. The reason is partly about power, partly about a different view on data and privacy on each side of the Atlantic.

The flaring debate around a global minimum tax also plays a role here. When 136 countries at the OECD agreed on 15 percent as a floor for corporate tax, the deal included a clause that specific “digital taxes” would be removed. That could threaten parts of the DSA and DMA.

The minimum tax, however, is still only a proposal, and the EU is pressing on with its own initiatives. In an interview with Reuters, Christel Schaldemose, who is leading the DSA effort in the European Parliament, said they want each EU country to regulate its own tech companies. That would mean the location of the European headquarters determines which legislation applies. For Apple, Google and Facebook that means Ireland, while Amazon would fall under Luxembourg law.

The principle sounds simple. But it also opens the door to a new version of a problem that already exists on the tax side.

The main reason tech companies’ headquarters sit where they do is, today, already driven by tax. Ireland is not an important market for any of the tech giants — what attracts them is a corporate tax of 12.5 percent and generous tax breaks for research and development. In Sweden, corporate tax is just over 20 percent, and in the United States 27 percent. The tech giants also become major employers and important civic actors wherever they land.

The idea that a country like Ireland would want to crack down on tech companies therefore looks unlikely. And were the legislation to land with them, it’s easy to imagine a more permissive stance. Tax havens, in other words, may end up with a new sibling – legislation havens. Whereas companies once chose a country for tax reasons, they may now choose one for its laws.

Putting legislation in the hands of each individual EU member state also risks creating internal competition between countries on these questions. That’s plausibly the opposite of the clarity Vestager and her colleagues are aiming for with the DSA and DMA. On top of that, you can question the ability of smaller countries to actually enforce the laws. There need to be resources to run legal proceedings at a high enough level.

Whichever country you look at, a reasonable guess is that the tech companies’ legal budgets are meaningfully larger than the state’s equivalent on the other side of the courtroom. Take Luxembourg. It has about 630,000 inhabitants. Amazon has 1.3 million employees.