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UPDATE 2-Trump says U.S. to hit France with 'substantial' action for digital tax

David Shepardson and Sarah White

tax@ (Adds French reaction)

WASHINGTON/PARIS, July 26 (Reuters) - U.S. President Donald Trump said on Friday the United States would hit France shortly with a "substantial reciprocal action" after Paris announced a tax aimed at U.S. technology companies.

"If anybody taxes them, it should be their home Country, the USA. We will announce a substantial reciprocal action on Macrons foolishness shortly," Trump tweeted, referring to French President Emmanuel Macron. "Ive always said American wine is better than French wine!" French Economy minister Bruno Le Maire said in a statement after Trump's tweet that "the universal taxation of digital activities is a challenge that concerns all of us. We want to reach a deal on this within the framework of the G7 and the OECD. In the meantime, France will move ahead with national decisions."

White House spokesman Judd Deere said the United States "is extremely disappointed by Frances decision to adopt a digital services tax at the expense of U.S. companies and workers. Frances unilateral measure appears to target innovative U.S. technology firms that provide services in distinct sectors of the economy."

He added "the administration is looking closely at all other policy tools." Last week, Trump spoke with Macron and expressed concerns about the countrys proposed digital services tax, the White House said.

Two weeks ago, the French Senate approved the 3% levy that will apply to revenue from digital services earned in France by firms with more than 25 million euros in French revenue and 750 million euros ($834 million) worldwide.

Other EU countries, including Austria, Britain, Spain and Italy, have also announced plans for their own digital taxes.

They say a levy is needed because big, multinational internet companies such as Facebook and Amazon are currently able to book profits in low-tax countries like Ireland, no matter where the revenue originates. Political pressure to respond has been growing as local retailers on main streets and online have been disadvantaged.

The U.S. Chamber of Commerce said the tax "targets U.S. firms almost exclusively and largely spares French companies. We have repeatedly urged European governments to address this issue multilaterally in negotiations at the OECD."

The U.S. Trade Representative's Office (USTR) last month said it would hold a hearing on Aug. 19 in its probe of Frances new planned tax on big technology companies after Trump ordered an investigation into the tax, which could lead to the United States imposing new tariffs or other trade restrictions.

USTR could issue new tariffs on French goods after the public comment period closes on Aug. 26.

USTR said the levy was an unreasonable tax policy. The plan departs from tax norms because of extraterritoriality; taxing revenue not income; and a purpose of penalizing particular technology companies for their commercial success, it said.

USTR added that statements by French officials suggest the tax will amount to de facto discrimination against U.S. companies ... while exempting smaller companies, particularly those that operate only in France. "

The tax is due to apply retroactively from the start of 2019. USTR said that calls into question the fairness of the tax. (Reporting by Tim Ahmann, Steve Holland and David Shepardson in Washington and Sarah White in Paris editing by Dan Grebler and Jonathan Oatis)