BRUSSELS — The European Commission had a plan to establish a set of EU-wide corporate rules to allow tech startups to scale up. Companies fear they could still face 27 different regimes.

Last summer, Commission President Ursula von der Leyen pitched an “EU-wide legal status” to help startups to grow. However, in the lead-up to the actual proposal being published, the “28th regime” became entangled in Commission tensions and industry pushback.

The main bone of contention is the proposal’s legal basis, which may seem a technical matter to some, but for startups, it’s critical.

For decades, startups have complained about the varying sets of rules governing incorporation, hiring and taxation in each EU country. They claim this hinders their growth and puts them at a disadvantage compared with their U.S. or Chinese counterparts.

The idea of having one set of harmonized rules across all EU member countries, rather than being subjected to 27 different national systems, was appealing to many. However, startups are now freaking out as they claim the promise is at risk of being fragmented into 27 different pieces.

Simon Schaefer, cofounder of the EU Inc initiative, branded one of the options on the table as “insane.”

Flexibility

Startups scored a big win last year when von der Leyen name-checked their key demand of more streamlined rules in her five-year program.

She promised to “address the patchwork of national regulations” in the form of a “28th regime to allow companies to benefit from a simpler, harmonized set of rules.” Areas marked as in scope were corporate law, insolvency procedures, labor law and taxation.

However, startups are irked by the initial steps to put meat on the bones.

Last week, the Commission launched a public consultation on the matter, promising to present a comprehensive proposal early next year that would establish an EU corporate legal framework which would be “digital-by-default.”

The consultation page revealed, though, that the Commission planned for the proposal to be a directive. An accompanying document left the door open for both a directive and a regulation.

As a regulation, the regime would be directly applicable across all EU countries, but as a directive, it would be at the mercy of national implementation and possible changes.

Startup lobby groups have rallied against the proposal being a directive, claiming it’s counterintuitive to the goal of establishing one set of rules.

Using a directive is “fundamentally flawed,” said Allied for Startups, EU Inc and the European Startup Network in a joint statement on Tuesday.

“[A directive] would leave 27 variations of implementation, that’s insane,” said Schaefer. “It would actually add complexity instead of taking it away.”

A counterargument is that if it’s a directive, countries are more likely to sign up for it, as they can add their own interpretation.

Siding with startups

The episode has also led to tensions inside the Commission, with the topic discussed at the technical level on Wednesday.

One Commission official told POLITICO that opting for a directive instead of a regulation is not the preference of Startup Commissioner Ekaterina Zaharieva. Another Commission official sided with the startup community, saying that a directive would result in 27 different systems, once again.

One person from the startup community who had spoken to the commissioner on the matter said she had warned peers that, as it stands, the proposal lacks ambition.

All declined to be identified, as they were not authorized to disclose private deliberations.

Startups fear numerous additional hurdles ahead when the EU’s two legislators, the European Parliament and the Council of the EU, get their teeth into the proposal.

On Tuesday, lawmakers from the Parliament’s legal affairs committee discussed a draft report penned by German Social Democrat lawmaker René Repasi on the “28th regime.” The report has no binding power, but could give a taste of lawmakers’ position.

In the report, Repasi also advocated for a directive, which resulted in heavy criticism from the three startup lobby groups mentioned.

The Commission did not respond to a request for comment ahead of publication.