EU Inc. Has a Blind Spot. It Is Called Accounting.

Credits to Arne Zoudlik from Design Republic

The EU Inc. Regulation harmonises company law across 27 Member States. But Article 105 quietly hands accounting back to national law. Here is why that matters and what should be done about it.

On 18 March 2026, the European Commission published the EU Inc. legislative proposal. The ambition is real: one company form, one set of rules, the same legal framework whether you are registered in Tallinn, Luxembourg, or Madrid. Zero minimum capital, 48-hour registration, a harmonised employee stock option scheme, and a digital infrastructure built for the 21st century.

It is genuinely the most serious attempt at a pan-European company form since the Societas Europaea. And yet, buried in the final provisions of the Regulation, is a single article that quietly unravels a significant part of that ambition.

Article 105. Accounting.

“The EU Inc. shall be subject to the requirements of the applicable accounting law of the Member State in which its registered office is situated.”

One sentence. And with it, the financial reporting framework for EU Inc. companies is left entirely to national law. A Luxembourg EU Inc. prepares its accounts under Luxembourg GAAP. An Estonian EU Inc. prepares its accounts under Estonian GAAP. The legal wrapper is harmonised. The numbers inside it are not.

This article examines why that matters, what the alternatives are, and why IFRS is the obvious solution that the Commission chose not to take.

Why Accounting Fragmentation Undermines EU Inc.

The entire value proposition of EU Inc. rests on predictability. An investor in New York or Singapore should be able to look at an EU Inc. company and understand, without qualification, what they are dealing with. The governance rules are the same. The share structure is the same. The registration process is the same.

But the financial statements? Those depend on where the company is registered.

This is not a theoretical problem. It has immediate practical consequences for the people EU Inc. is designed to attract.

The Investor Due Diligence Problem

When a venture capital firm evaluates an investment, one of the first things it does is review the financials. If an EU Inc. company registered in France prepares accounts under French GAAP and a comparable EU Inc. registered in the Netherlands prepares accounts under Dutch GAAP, those financial statements are not directly comparable. Revenue recognition rules differ. Asset valuation approaches differ. Treatment of deferred tax, financial instruments, and lease obligations can all differ significantly across national GAAP frameworks.

A cross-border investor now faces the same due diligence complexity they would face when comparing two entirely different national company forms. The EU Inc. label gives them legal certainty. The accounts give them something much less clear.

The Scale-Up Problem

For a startup scaling across multiple EU countries, the problem compounds. If an EU Inc. parent company and its EU Inc. subsidiaries in different Member States all prepare accounts under different national GAAPs, consolidation becomes a reconciliation exercise. The administrative burden of managing multiple accounting frameworks is precisely the kind of friction that EU Inc. is supposed to eliminate.

The Creditor and Lender Problem

Banks and other lenders use financial statements to assess creditworthiness. The balance sheet and solvency tests that govern distributions under EU Inc. are based on financial statements. If those statements are prepared under divergent national accounting standards, the reliability and comparability of those tests varies across jurisdictions. A creditor lending to an EU Inc. in one Member State cannot easily benchmark that company against an EU Inc. in another.

What Article 105 Actually Says

Article 105 of the EU Inc. Regulation is worth reading in full, because it is remarkably brief for something with such significant consequences.

“The EU Inc. shall be subject to the requirements of the applicable accounting law of the Member State in which its registered office is situated. However, Article 26 shall apply as regards the filing and public availability of accounting documents of the EU Inc.”

The first sentence defers to national law entirely. The second sentence ensures that wherever the accounts are prepared and under whatever standard, they must be filed and made publicly available through BRIS, the EU business registers interconnection system.

The Commission has therefore harmonised the disclosure obligation but not the standard under which the accounts are prepared. You will be able to find the accounts of any EU Inc. company in one place. But they will not necessarily tell you the same story in the same language.

This approach is consistent with how the EU has historically handled accounting for non-listed companies. The Accounting Directive (Directive 2013/34/EU) sets minimum requirements for financial statements of limited liability companies across the EU but explicitly allows Member States to apply their own national GAAP as long as it meets those minimum standards. EU Inc. simply inherits this fragmented status quo rather than challenging it.

The IFRS Solution

The solution is not complicated. It already exists, it is already EU law, and it is already accepted by every Member State. It is called IFRS, the International Financial Reporting Standards.

What IFRS Is

IFRS is a set of accounting standards developed by the International Accounting Standards Board, an independent body based in London. They are designed to provide a common accounting language for companies operating across international boundaries. More than 100 countries use IFRS in some form. They cover everything from how revenue is recognised to how financial instruments are measured to how lease obligations appear on a balance sheet.

In the EU, IFRS is not a foreign import. It is established EU law under Regulation (EC) No 1606/2002, the IAS Regulation, which has been in force since 2005.

What the IAS Regulation Already Requires

The IAS Regulation makes IFRS mandatory for the consolidated financial statements of all EU companies whose securities are traded on a regulated market. This covers every publicly listed company in the EU, from Volkswagen to ASML. Every one of the 27 Member States applies this requirement. There is no opt-out for listed companies on regulated markets.

The IAS Regulation also allows Member States to extend IFRS to additional categories of companies, including non-listed companies and to the individual or statutory accounts of listed companies. This is where fragmentation enters. Some Member States have taken up these options broadly. Others have not. The result is that the availability of IFRS for the kind of statutory accounts an EU Inc. would prepare varies significantly across the EU. In countries where local GAAP is closely tied to the calculation of taxable income, such as Germany and France historically, there has been strong resistance to allowing IFRS for statutory accounts precisely because it would decouple financial reporting from tax computation.

The Case for Making IFRS the Default for EU Inc.

The argument for making IFRS the default accounting standard for EU Inc. statutory accounts is straightforward and does not require any new infrastructure to be built.

First, every Member State already recognises IFRS. There is no standard-setting work required, no new endorsement process, and no new institutional architecture. The standard exists, it is endorsed by the EU, and it is applied by EU companies today.

Second, IFRS is the standard that international investors already know. A US venture capital firm, a UK pension fund, or a Singaporean sovereign wealth fund that invests in a listed EU company today reads IFRS accounts. Making EU Inc. accounts prepared under IFRS would remove a layer of translation and complexity for exactly the investors EU Inc. is designed to attract.

Third, the political argument is simpler than for tax or labour harmonisation. IFRS harmonisation for EU Inc. does not require touching tax rates, which need unanimity in the Council. It does not require harmonising employment law, which Member States guard closely. It requires extending an accounting standard that is already EU law and already universally recognised to a new category of company. The legal basis under Article 114 TFEU, which already supports EU Inc., is broad enough to support this extension.

Fourth, and most directly: it is consistent with the stated purpose of the Regulation. If EU Inc. is meant to provide a single, harmonised framework that removes fragmentation for founders and investors, leaving accounting to 27 different national standards is a structural contradiction.

The Counterarguments

The main counterargument is that IFRS is complex and potentially burdensome for early-stage companies. IFRS was designed for large, publicly listed companies with complex financial structures. Requiring a three-person startup to prepare full IFRS accounts may create administrative costs that outweigh the benefits.

This concern is legitimate but not fatal to the argument. One practical middle ground would be to use the IFRS for SMEs standard, a significantly simplified version of IFRS developed specifically for smaller private companies that is already used in over 85 jurisdictions worldwide. Critically, the EU has not yet endorsed IFRS for SMEs at EU level. Doing so as part of the EU Inc. legislative process would therefore require a deliberate policy choice. But this is precisely the kind of choice the Commission could make: endorse IFRS for SMEs as a directly applicable EU standard for EU Inc. companies below certain size thresholds, with full IFRS applying as the company grows and ultimately lists. A third edition of IFRS for SMEs was issued in February 2025 and is effective from 1 January 2027, making the timing alignment with the EU Inc. legislative process realistic.

An alternative approach would be to make IFRS optional for EU Inc. companies below a certain size, with it becoming the default once a company reaches the medium-sized threshold under the Accounting Directive. This would allow early-stage companies to use simplified national standards initially while ensuring that EU Inc. companies at the scale where cross-border investment matters most are producing comparable, internationally readable accounts.

A second counterargument is that accounting and tax are linked in many Member States. If EU Inc. companies are required to prepare IFRS accounts, and IFRS accounts differ from local GAAP, companies may need to maintain two sets of accounts: one for IFRS reporting and one for local tax purposes. This dual reporting burden is real. However, it is a problem that listed companies in those same Member States already manage today. And it is arguably a lesser burden than the current situation, where a company scaling across multiple EU countries manages multiple different national GAAPs simultaneously.

What Needs to Change

The fix is simple in principle. Article 105 of the EU Inc. Regulation needs to be amended during the legislative process to provide EU Inc. companies with a harmonised accounting option, with IFRS as the default for larger companies and an option to trigger EU-level endorsement of IFRS for SMEs for smaller ones, reducing the national GAAP fallback to a genuine exception rather than the default.

This is not an ask for a separate legislative initiative. It is a single article in a Regulation that is already moving through the legislative process. The European Parliament and the Council will spend the next year to two years negotiating the text of the EU Inc. Regulation. Amending Article 105 to introduce a harmonised accounting standard is precisely the kind of targeted improvement that can be made during that process.

The EU-INC initiative and Allied for Startups have already called for a deeper harmonisation of the EU Inc. framework. The accounting gap should be part of that call. It is arguably more tractable politically than the calls for a central court or a full standalone registry, because the standard already exists and is already EU law.

The Commission has done serious work with EU Inc. The financing framework is sophisticated. The digital infrastructure is genuinely new. The employee stock option scheme addresses a real pain point. But a company that is legally European from day one, with a governance framework that is the same everywhere, should also have financials that are readable the same way everywhere.

Article 105, as currently drafted, is the accounting equivalent of building a single European highway network and then leaving each country to decide which side of the road to drive on.

Note: This article is based on the European Commission’s legislative proposal for the 28th Regime Corporate Legal Framework (EU Inc.), COM(2026) 321 final, published on 18 March 2026. The proposal is subject to amendment during the ordinary legislative procedure through the European Parliament and Council. This article does not constitute legal or accounting advice.

Sources

[1] EU Inc. legislative proposal, COM(2026) 321 final, 18 March 2026 *https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52026PC0321*

[2] Regulation (EC) No 1606/2002 on the application of international accounting standards (IAS Regulation) *https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32002R1606*

[3] Directive 2013/34/EU on annual financial statements (Accounting Directive) *https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32013L0034*

[4] European Commission — Financial Reporting overview *https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/financial-reporting_en*

[5] IFRS Foundation — EU jurisdiction profile *https://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-by-jurisdiction/view-jurisdiction/european-union/*

[6] Commission Regulation (EU) 2023/1803 codifying IFRS as adopted by the EU *https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32023R1803*

[7] IFRS for SMEs Standard — IFRS Foundation *https://www.ifrs.org/issued-standards/list-of-standards/ifrs-for-smes-standard/*

[8] Article 114 TFEU — Treaty on the Functioning of the European Union *https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A12012E114*

[9] EU-INC open letter on the 28th regime *https://eu-inc.eu*