On Thursday, lawmakers in Paris approved a levy of 3 per cent on the revenues of large digital companies, a group likely to include US firms like Facebook and Microsoft, but Mr Trump pre-empted the move by directing his trade representative to open up a probe into the tax on Wednesday.
“The United States is very concerned that the digital services tax… unfairly targets American companies,” said US Trade Representative Robert Lighthizer.
“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.”
The French government has said that multinational tech firms pay little to no tax in France. Under the plans, any digital company generating more than €750m (£670m) in sales, including at least €25m in France, will be subject to the levy. Around 30 firms are likely to be affected.
France’s Finance Minister Bruno Le Maire hit back at US claims: “France is sovereign, and France decides its own tax rules. And this will continue to be the case.” He added that the two countries could reach an agreement on “fair taxation” rather than use threats.
America hit China with tariffs affecting around $250bn of imports after conducting a similar probe into Beijing’s policies on technology, intellectual property and innovation.
Mr Trump has repeatedly accused the European Union of being even worse than China in its trade policies and last month attacked EU competition commissioner Margarethe Vestager for targeting US firms.
France took action after international efforts to clamp down on tax avoidance by multinational firms, particularly technology companies, failed to move forward.
EU member states were in talks over a levy but consensus could not be reached after Ireland, the Czech Republic, Sweden and Finland rejected the proposals.
The UK government plans to implement its own 2 per cent tax in April 2020 on UK revenues of technology companies that “derive significant value from the participation of their [UK?] users”.
The UK levy won’t be enforced if the Organisation for Economic Co-operation and Development agrees an international alternative.
George Turner, director of Tax Watch UK, said France’s move was “borne out of frustration at the lack of action on an international level”.
“Everyone accepts that there is a problem of tax avoidance by large multinational companies and now France is taking it in its own hands,” Mr Turner said.
But he cautioned that a tax on turnover, rather than profits, is very simple but also very problematic as companies that are making a loss will still be required to pay it.
“The longer-term solution is to look at how to allocate profits to different countries.”
Currently many large companies shift profits to low-tax jurisdictions, avoiding hundreds of billions of dollars of taxes in the process.
“All of Google’s revenues outside the US are allocated to Bermuda – clearly, that’s absurd,” said Mr Turner. “Companies need to allocate profits in a reasonable way.”
Tax Watch has also proposed alternatives such as taxing the flows of money that allow companies to shift profits around the globe.
For example, multinationals frequently use subsidiaries registered in tax havens to charge “royalty fees” to other in a jurisdiction where their customers are actually based.
This minimises the profits of parts of the company in higher tax jurisdictions by shifting money to low-tax ones. Under Tax Watch’s proposal, those flows would be taxed.
The European Commission estimates that digital companies typically pay just 8 per cent or 9 per cent tax on their profits in the EU compared with 23 per cent for traditional companies.
Amazon backed Mr Trump’s approach and called the French tax “poorly constructed” and “discriminatory”.
“We applaud the Trump administration for taking decisive action against France and for signaling to all of America’s trading partners that the US government will not acquiesce to tax and trade policies that discriminate against American businesses,” the company said in a statement.