US Trade Representative Robert Lighthizer said in a statement ahead of the adoption of the French law that Washington was "very concerned" it would "unfairly" target American companies. That is about 30 companies and it means the tax will impact many United States companies such as Google, Amazon and Facebook.
In an unusual move that threatens to worsen trade tensions with Europe, the Trump administration said it will investigate whether a proposed French tax on tech companies discriminates against U.S. business, a step that could lead Washington to impose trade penalties.
Although the USA could target France with tariffs directly in response to the proposed tax, the US imposing tariffs on France would trigger a trade war with the whole of the European Union.
The new law aims at plugging a taxation gap that has seen some internet heavyweights paying next to nothing in countries where they make huge profits as their legal base is in smaller European Union states. The bill foresees a 3-percent tax on the French revenues of digital companies with global revenue of more than 750 million euros, and French revenue over 25 million euros.
France's Senate gave the final approval to a tax on big technology companies with revenue of more than €750m of which at least €25m generated in France.
Addressing the French Senate before the Thursday vote, Finance Minister Bruno Le Maire this was "the first time in history" that Washington has invoked Section 301 against France.
The tax has always been championed by French president Emmanuel Macron as a way to show that governments are capable of taking action to rein in large tech companies, which are seen as paying minimal tax in Europe due to their use of accounting loopholes. The investigation falls under Section 301 of the U.S. Trade Act of 1974, the same provision that was used to impose tariffs on China.
"The United States will continue its efforts with other countries at the OECD to reach a multilateral agreement to address the challenges to the worldwide tax system posed by an increasingly digitized global economy", the USTR said in its statement Wednesday. The inquiry could lead to retaliatory tariffs.
The lawmakers included a suggestion to use a section of the tax code that would double the rate of US taxes on French citizens and companies in the U.S.
United States authorities have criticised the EU's plans to introduce a "digital tax, ' describing the measures as 'discriminatory" in a letter penned to European Council president Donald Tusk and Commission President Jean-Claude Juncker, at the close of last week's EU summit.
Essentially, the concern is that the French tax is going to affect mostly American companies. The investigation will come under the same provision used previous year to examine China's tech policies, Section 301, which led to tariffs on $250 billion worth of Chinese imports.
The French government says the tax will end if a similar measure is agreed internationally.
"France is a sovereign country".