On Wednesday, the Trump administration announced an investigation into the tax under the provision used last year to probe China’s technology policies, which led to tariffs on $250 billion worth of Chinese imports.
Robert Lighthizer, a US Trade Representative, raised concerns the about the new tax in France, which was passed by the French Senate on Thursday, saying it "unfairly targets American companies".
But France hit back, with its finance minister Bruno Le Maire saying “between allies, we can, and we should, solve our differences without using threats."
He added: "France is a sovereign country. It will make its own sovereign decisions on fiscal measures."
The French digital services tax will impose a 3% annual levy on French revenues of digital companies with yearly global sales worth more than 750 million euros and French revenue exceeding 25 million euros.
The Bill aims to stop multinationals from avoiding taxes by setting up headquarters in low-tax EU countries. Currently, the companies pay nearly no tax in countries where they have large sales like France.
The tax primarily targets those that use consumers’ data to sell online advertising.
The French Finance Ministry has estimated that the tax would raise about 500 million euros annually at first — but predicted that collections would rise “quickly”.
The tech industry warns it could lead to higher costs for consumers. The levy could affect US companies including Airbnb and Uber as well as those from China and Europe.
Bob Atkinson, president of the Information Technology and Innovation Foundation, issued a statement welcoming Mr Lighthizer’s investigation.
“Digital services taxes are an ill-disguised effort to target companies that are thought to be too powerful, too profitable, and too American,” Mr Atkinson said.
The administration also got some bipartisan support from the top members of the Senate Finance Committee.
In a joint statement, Republican Chuck Grassley of Iowa, who is committee chairman, and Democrat Ron Wyden of Oregon said: “The digital services tax that France and other European countries are pursuing is clearly protectionist and unfairly targets American companies in a way that will cost US jobs and harm American workers.”