Few will doubt that the digital transformation of economic activity has proved challenging for governments raising revenues to fund their activities. When taxable economic activity moves beyond their borders, their ability to raise revenues—sales or value-added taxes, for example—disappears. While the profits of tax-resident subsidiaries can be taxed as income, if there are no local subsidiaries or the transactions are associated with entities in other jurisdictions, then tax receipts decline, creating problems for balancing government budgets. Governments, therefore, are challenged with coming up with new ways to extract revenues.

An example of such an initiative is Australia’s tax on digital services supplied by non-Australian firms such as Netflix not liable for the 10 percent goods and services tax on sales by Australian firms, who were losing customers (and profits) to the foreign providers. The new tax, in effect from 2017, helped plug a growing revenue gap and was acclaimed as having restored a degree of competitive fairness. Without it, untaxed foreign firms had a cost advantage over local rivals, leading to sales switching from Australian to foreign firms and reduced corporate and consumption tax revenues. Several other countries have subsequently introduced digital services taxes.

Small economies such as Australia’s are especially challenged by the loss of economic activity offshore. However, the governments of larger economies are not immune to other digitization-induced changes. The European Union, for example, has been vexed by the dominance in its large single market by a handful of foreign—largely American—digital firms that it perceives to be reducing competition, contestability, and fairness as a consequence of the economic features of digital transacting: large economies of scale, network effects, two-sidedness, and market tipping. And along with dominance comes the threat of abusing it.

Together with endeavors to protect the data of EU citizens and corporations, not to mention the advent of artificial intelligence, this has led to increased legislative activity—the General Data Protection Regulation, Digital Services Act, Digital Markets Act and the AI Act—and a much-enlarged monitoring and enforcement effort. But more monitoring and enforcement requires larger government budgets. The question facing the EU is where to raise these additional revenues.

The European Commission’s response was its July 2025 proposal, Corporate Resource for Europe (CORE). To be fair, digital activity is only one source of increased regulatory activity—other cost burdens arise from monitoring and enforcing the EU’s Emissions Trading System, Carbon Border Adjustment Mechanism, and Tobacco Excise Directive. CORE is based on the premise that large companies “benefiting” from the large EU single market should contribute to financing the EU budget. If implemented, EU tax-resident companies and EU permanent establishments of non-EU companies whose annual net turnover exceeds €100 million would be required to make an annual lump-sum “contribution” to the EU of €100,000–€750,000 (based on revenue band). Annual revenue of approximately €6.8 billion is projected to be raised.

The framing of CORE as a general corporate contribution and not a tax was thought initially to be more politically acceptable internationally than a digital services tax. It covers all firms above each revenue bar, regardless of their domicile or industry sector, so is less likely to attract criticism for being anti–Big Tech or anti-American, even though the bulk was expected to come from American Big Tech firms. Nonetheless, many member states are concerned about the precedent it would establish and potential conflict with the EU’s competitiveness agenda.

The EU Parliament, however, has investigated a specific digital levy—essentially a digital services tax—covering a wide range of online services, including streaming, cloud services, data transmission, and digital platform services. Scenarios of 3 percent and 5 percent have been explored, potentially raising up to €25.2 billion a year. This approach is less controversial among member states but poses questions about whether the EU levy would replace, supplement, or overlap with national digital services taxes in the member states that have implemented them. Implementation of the proposed tax would not be trivial.

The European Commission apparently still favors a CORE-type levy. On October 7, Reuters, reporting the Financial Times, claimed the commission was considering changing CORE to capture more revenue from the likes of Apple, Meta, and Google without having to introduce a levy specifically targeted at technology firms. The proposal is clean—it cuts across no other member-state revenue gathering—even though it raises competitiveness questions.

Yet the core (no irony intended) question remains still how to fund the commission’s ever-growing budget as the bureaucratic demands of its governance of digital firms and markets (among others) continues to grow. Given the somewhat modest achievements to date of the Digital Markets Act (and likely other legislation), maybe budget-balancing would be more easily achieved instead by relaxing regulatory intensity?

Unfortunately, this question remains conspicuously unaddressed.