This runs contrary to the entire ethical premise of a "main establishment" in Europe, built on the idea that the laws/regulators of that European Member State should govern companies where they have their main establishment. That's why Facebook is operated in Europe under Irish laws and why the Irish regulator is leading the European privacy reviews into it. Facebook clearly has established its main establishment in Ireland, in terms of governance, headquarters, employees, etc, in other words, in the real world, rather than just a legal mailbox fiction.
So, could Luxembourg possibly be the "main establishment" in Europe for Microsoft? Of course not. Microsoft has forum shopped a tiny European country, for whatever legal, tax, or regulatory advantages it thought it could gain from "locating" there, without of course, "locating" hardly anything there at all.
I have long supported the need to create the concept of "lead regulators" and "main establishment", in order to bring more efficiency and predictability to privacy in Europe. But my advocacy has always been based on the belief that the selection of "main establishment" should be based on objective criteria, like having a large workforce and real-world activities located there.
A shrewd company like Microsoft goes forum shopping and claims that its dealings with nearly half a billion people in Europe are governed by the laws and regulators of the tiny Grand Duchy of Luxembourg. Blimey.