US president Donald Trump has instructed his most senior trade official to investigate French plans to tax large technology companies, as US officials consider imposing tariffs in retaliation.

Robert Lighthizer, the US trade representative, said Washington would conduct a so-called Section 301 investigation into France’s digital services tax, which he said unfairly targeted US companies. The unilateral move could result in tariffs on French wine or cars, according to one person briefed on the investigation - though both sides would have to seek a negotiated settlement first.

“The United States is very concerned that the digital services tax which is expected to pass the French Senate tomorrow unfairly targets American companies,” Mr Lighthizer said.

“The president has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce.”

Digital tax

A French finance ministry source said that the tax was totally compliant with international agreements and that it was inappropriate to use trade instruments in retaliation for the French digital tax.

French senators voted on Thursday to pass the new tax, which will impose a charge of 3 per cent on the turnover of digital companies with revenues of more than €750 million globally and €25 million in France.

It will affect about 30 companies, including US groups Alphabet, Apple, Facebook and Amazon, companies from China, Germany, Spain and the UK. It would also affect one French company: the advertising platform Criteo.

Speaking in the French senate on Thursday, Bruno Le Maire, the finance minister, said allies should be able to sort out differences “in other ways than by using threats”. He said: “France is sovereign, and France decides its own tax rules. And this will continue to be the case.”

He added that France’s digital tax should be an incentive for the US “to accelerate even more our work to find an agreement on the international taxation of digital services at the OECD level”.

French President Emmanuel Macron and Mr Le Maire, who have put “making capitalism fairer” at the top of the agenda for France’s presidency of the G7 rich economies this year, want to ensure that big tech companies pay reasonable levels of tax in the countries where they make their profits.

Paris pressed ahead with the levy after failing to secure unanimous agreement for a wide-ranging digital tax at EU level in the face of opposition from Ireland, Sweden and Denmark. French officials say the national tax will be a temporary measure that will apply until a broader international measure is agreed.

US anger

According to one person close to the situation, Mr Trump was angered by the French move. The person said that despite his own hostility to large technology companies, the US president viewed the French tax as a direct attack on American businesses.

The US previously conducted a Section 301 investigation in 2017 into China’s policies on technology, intellectual property and innovation. Following that probe, Washington increased tariffs on Chinese imports worth $250 billion, triggering the long-running US-China trade war.

Industry executives say launching a similar investigation into the French tax is a particularly aggressive move, given the OECD is conducting multilateral discussions over how to tax international technology companies. The US said on Wednesday it would continue those discussions while conducting its own examination.

Washington will now have 12-18 months to seek an agreement with Paris over how US technology companies are to be taxed in France. If no agreement is reached, Mr Trump will have to decide whether to levy tariffs instead.

Jennifer McCloskey, vice-president of policy at the Information Technology Industry Council, which represents technology companies from around the world, said: “While we had hoped escalation of this issue could be avoided, we now recognise that countries affected by France’s measure need to take stronger action in order to persuade France and others to refrain from unilateral measures and recommit to the OECD discussions.”

She added: “We support the US government’s efforts to investigate these complex trade issues but urge it to pursue the 301 investigation in a spirit of international co-operation and without using tariffs as a remedy.”

OECD plans

In February, Steven Mnuchin, US Treasury secretary, and Mr Le Maire said in Paris that they wanted to reach a deal on global tax reform this year at the 36-nation OECD to fix a minimum level of corporation tax that would prevent companies booking profits in tax havens or low jurisdictions. Lawyers working on the issue, however, said it was unlikely an agreement could be finalised before 2020.

Mr Mnuchin said then that he was “sympathetic” about the French dilemma, but insisted that governments needed to consider all types of companies, not just the technology sector dominated by US groups such as Amazon and Google.

“We’ve both instructed our teams at the OECD to try to have this issue resolved,” Mr Mnuchin said at the time. “We are very much looking forward to the position of France that if there is a global solution at the OECD, that would replace [the French tax], so we are hopeful that we can resolve this issue this year together.” – Copyright The Financial Times Limited 2019