Margrethe Vestager’s New Antitrust Plan of Attack Sees Big-Tech Breakups as a Last Resort

Vestager made an enemy of Silicon Valley during her first year as EU competition czar. Now she's digging in for her second. (Photo by ARIS OIKONOMOU/AFP via Getty Images)

For years, tech executives have lobbied European Union officials over their antitrust actions against giants like Facebook, Apple and Google. And President Donald Trump has accused Margrethe Vestager, the official leading those efforts, of being the person who “hates the United States more than anyone I have met.”

But any hope tech companies had of an easier ride under Europe’s new administration, which takes control next month, was dashed on Tuesday. That’s when Vestager outlined her plan of attack for the years ahead, which did—interestingly—stop short of calling for a Big-Tech breakup.

Vestager was testifying in the European Parliament in Brussels, during confirmation hearings for her appointment as one of the EU Commission’s vice presidents (there are four veeps in all) in charge of all things digital, as well as a second five-year term as competition commissioner. Her appearance, in front of admiring and polite lawmakers, made clear that for her confirmation, Vestager has no reason to worry.

Lessons learned

The same cannot be said for Big Tech. In a strategy honed during five years of battle, Vestager laid out plans to act against companies that dodge their tax obligations or avoid paying taxes in countries where their users live and that suck up vast amounts of users’ data without making clear how it is being monetized. “One of the things I have learned,” she told lawmakers, “is that it is not you searching Google. It is Google searching you.”

Vestager, right, speaks with journalist Kara Swisher during the Web Summit 2017 in Lisbon. (Photo By Seb Daly/Web Summit via Sportsfile via Getty Images)
Seb Daly—Web Summit via Sportsfile via Getty Images

That is not the only lesson Vestager appears to have absorbed. From reciprocal markets to tax minimization, she said she had sharpened her tactics after witnessing years-long legal cases wind through European courts. In July last year, the EU fined Google a record €4.34 billion (about $4.75 billion) for abusing its market dominance with Android mobile phones.

But Vestager is learning from her defeats, too. Just two weeks ago, the EU’s General Court in Luxembourg overturned a ruling against Starbucks, in which Vestager claimed the Seattle-based company had benefited from “illegal state aid,” by setting up a super-low-tax arrangement for its European domicile in the Netherlands. Amazon is appealing a similar case, in which it was ordered to repay $300 million to Luxembourg, where it has its European headquarters, and where it pays minuscule taxes.

And Vestager’s biggest case of all—against Apple—is now being fiercely contested in the courts. In 2016, Apple was ordered to pay $14.5 billion in back taxes to Ireland, where it has had its European headquarters in sleepy Cork ever since Steve Jobs visited the city in 1991. Vestager argued that the company had paid an effective tax rate of about 1%, giving it an unfair competitive advantage. Both Apple and Ireland are challenging the decision in court—Ireland has said it does not want the money; attracting corporate investment is more appealing.

A deep toolbox

None of that will deter Vestager, who told lawmakers in Brussels on Tuesday she intends pursuing more such tax cases. “We will continue,” she said.

Vestager said that by the end of next year, the EU would begin compelling tech companies to pay taxes on revenues in the countries where their users reside—a measure that would require overhauling some of Europe’s tax laws, which predate the digital age. “If we cannot find global agreement, we do intend to act ourselves,” she said. “Otherwise more and more corporations will stop paying taxes, because more and more things become digital.”

Asked by one lawmaker if she plans to push for the break-up of Google or Facebook—as some EU officials have suggested—Vestager said she regarded that as a last-resort measure, to be used only if the companies fail to rein in their practices. “This is a tool we have available. It can be done,” she said. But she said she had “an obligation to use the least intrusive tool.”

For tech companies, that was one of the few reassuring signs, however.

Vestager said she intends to require the EU’s 27 countries (down from 28 after Brexit) to enforce the EU’s General Data Protection Regulation, or GDPR, in which every platform is required to plainly state its privacy rules, and allow users to opt out of data collection. “National authorities need to enforce that in full,” she said. “What kind of life do we want to live? It cannot be only digital.”

A new target: China

And while Trump has also labeled Vestager “the tax lady,” she made it plain on Tuesday that she is aiming to tackle a target other than Big Tech: China.

Calling China a “strategic competitor,” Vestager said the EU needed to insist on reciprocity in their markets—echoing the message pushed by Trump himself. She said the EU’s vast procurement budget, which exceeds about $3.3 trillion a year, could act as a powerful weapon in trade negotiations. “We invite people to come do business, and we are not invited back,” said Vestager, who was raised in a small Danish town, the daughter of two Lutheran Church ministers. “Where I come from, if you are not invited back, well, then you stop inviting people.”

More must-read stories from Fortune:

10,000 jobs on the line as HSBC mulls its future in Europe
Hong Kong’s mask ban pits anonymity against the surveillance state
—The world’s biggest turbines and no subsidies: how offshore wind is entering a new era
—The global phenomenon of “American Sriracha”
Plant-based meats have huge potential in China, but Beijing wants a homegrown champion
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.

Subscribe to Well Adjusted, our newsletter full of simple strategies to work smarter and live better, from the Fortune Well team. Sign up today.