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US mulls retaliation to French tech tax

The US is preparing tariffs on $2.4bn (£1.85bn) worth of French exports as retaliation against the country's new digital services tax.

The top US trade official said the new tax, which France approved in July, unfairly targets American tech giants.

He said the tariff plans were intended to deter other countries from taking similar steps.

The items that could face tariffs at rates up to 100% include cheese, sparkling wine, make-up and handbags.

The 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", said US Trade Representative (USTR) Robert Lighthizer.

'Growing protectionism'

Mr Lighthizer announced the potential tariffs, which will now enter a public comment period, at the end of his office's investigation of the French tax.

It found that the law - which taxes turnover instead of profit - was inconsistent with international tax norms and "unusually burdensome" for US tech firms.

Mr Lighthizer said the US is exploring opening investigations into similar laws in Austria, Italy and Turkey. The UK has also taken steps towards a tech tax.

"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," he said.

France has long argued that taxes should be based on digital activity, not just where firms have their headquarters.

Its new law imposes a 3% tax on sales of certain digital services that happen within its borders. It applies to any digital company with revenue of more than €750m ($850m; £670m) - of which at least €25m is generated in France.

The tax will go into effect retroactively from early 2019 and is expected to raise about €400m this year.

About 30 companies are expected to pay it, mostly US firms such as Alphabet, Apple, Facebook, Amazon and Microsoft.

Amazon has already responded by raising fees for French businesses by 3%.

US tech companies say such laws force them to pay double tax. They say modernisation of tax rules should be an international effort, but those negotiations remain slow-going.

The French government, which announced its law after an EU-wide proposal stalled, has said the tax will end if a similar measure is agreed internationally.

Over the summer, President Donald Trump threatened to tax French wine over the issue - a plan that the French agriculture minister dismissed as "completely moronic".

But some US business lobby groups had warned against tariffs because of fears of escalating another trade fight, despite their opposition to the French law.

The US Chamber of Commerce, for example, said tariffs "may elicit additional rounds of retaliatory measures that represent a substantial risk to US economic growth and job creation".

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