United States threatens France with 100% tariffs on goods over digital tax

Frenchsparkling wine, yogurt and Roquefort cheese areonthe list ofgoodsthat could be targeted as soon as mid-January after a report from theUSTrade Representative's office found thedigitaltaxpenalises American tech companies such as Google, Apple, Facebook and Amazon.

The decision "sends a clear signal that the United States will take action againstdigitaltaxregimes that discriminate or otherwise impose undue burdensonUScompanies,"USTrade Representative Robert Lighthizer said in a statement.

Lighthizer also warned that Washington was considering widening the investigation to look into similar taxes in Austria, Italy, and Turkey.

"The USTR is focusedoncountering the growing protectionism of EU member states, which unfairly targetsUScompanies, whether throughdigitalservices taxes or other efforts that target leadingUSdigitalservices companies," he said.

Watch: Trump says US to hit France with 'substantial action for digital tax'

The announcement came just hours before President Donald Trump is due to meet hisFrenchcounterpart Emmanuel Macrononthe sidelines of the NATO summit in LondononTuesday.

TheFrenchtax, enacted earlier this year, imposes a three per cent levyonthe revenues earned by technology firms in France, which often come from online advertising and otherdigitalservices.

Thetaxaffects companies with at least 750 million euros ($830 million) in annual global revenueontheirdigitalactivities.

TheFrenchtaxtargets revenue instead of profits, which are often reported by tech giants in low-taxjurisdictions like Ireland in a practice that has enraged governments.

The USTR report "concluded that France'sDigitalServicesTax(DST) discriminates againstUScompanies, is inconsistent with prevailing principles of internationaltaxpolicy, and is unusually burdensome for affectedUScompanies."

After thetaxwas enacted, Trump in July vowed "substantial" retaliation for theFrenchmeasure.

The USTR has scheduled public hearingsonthe proposal to imposes "duties of up to100 per cent oncertainFrenchproducts," and the possibility of "imposing fees or restrictionsonFrenchservices."

The last date to submit commentsonthe proposed actions is January 14, and "USTR expects to proceed expeditiously thereafter."

Roquefort, not Bordeaux

The list ofFrenchproducts subject to potential duties includes cosmetics, porcelain, soap, handbags, butter, and several kinds of cheeses, including Roquefort, Edam and Gruyere.

Industry groups welcomed the report, with the Information Technology and Innovation Foundation saying in a statement that France'staxis "narrowly and inappropriately targeted to raise revenue only from the largest companies in a small set of industries, many of them American."

While applauding the USTR investigation, the Information Technology Industry Council's vice president of policy Jennifer McCloskey said the group would prefer to avoid "a strong trade response."

"We respectfully urge the United States, France, and all participating governmentsto focusona successful and lastingtaxpolicy resolution" at the Organisation for Economic Cooperation and Development (OECD), she said in a statement.

Last month, G20 ministers meeting in Washington opened talksonan international system totaxglobal tech giants that the OECD hopes would take effect by June.

In an interview Monday prior to the USTR announcement,FrenchFinance Minister Bruno Le Maire accused Washington of losing interest in such a deal.

"Having demanded an international solution from the OECD, it (Washington) now isn't sure it wants one," Le Maire told France Inter radio.

"We can see that the United States is shifting into reverse."

Public outrage has grownoverthe practice of profit shifting, which critics say deprives governments of their fair share oftaxrevenue.