The US is threatening to impose $2.4bn (£1.85bn) worth of tariffs on French exports after a top US trade official said that France’s new digital services tax unfairly targets American tech companies.
The Office of US Trade Representative released a list of the items that face tariffs at rates up to 100% — which include make-up, cheese, and handbags.
US Trade Representative (USTR) Robert Lighthizer said the tariff decision "sends a clear signal that the United States will take action against digital tax regimes that discriminate or otherwise impose undue burdens on US companies.
"The USTR is focused on countering the growing protectionism of EU member states, which unfairly targets US companies, whether through digital services taxes or other efforts that target leading US digital services companies."
However, the US Chamber of Commerce warned that the new set of tariffs "may elicit additional rounds of retaliatory measures that represent a substantial risk to US economic growth and job creation."
France’s junior economy minister Agnes Pannier-Runacher said on Tuesday: "It is very clear that we do not need to go back on this, with regards to a topic that economically speaking makes sense," referring to the digital tax. "We need to be pugnacious on the subject.”
What is the digital tax?
It has been claimed by many countries across the world that tech giants, such as Amazon (AMZN), Facebook (FB), Google (GOOG), Netflix (NFLX), Apple (AAPL) and Microsoft (MSFT), are paying a relatively small amount of tax to the countries it makes sales in.
This week, a report accused the ‘big six’ tech firms of “aggressively avoiding” $100bn of global tax over the past 10 years by moving sales and profits through low-tax countries and tax havens — such as Bermuda, Ireland, Luxembourg, and the Netherlands.
France has been one of the most vocal governments to push for taxes to be paid, based on digital activity, not where companies have their headquarters.
The new law, which is set to retroactively go into effect from early 2019, will see a 3% tax imposed on revenue of digital services that happen within France.
It will apply to any digital company with sales of more than €750m (£670m, $850m), in which 30 companies are expected to be affected.
Amazon retaliated to the new tax by raising fees for French businesses by 3%.