UPDATE 1-France warns U.S. against digital tax retaliation

French Economy Minister Bruno Le Maire warned the United States on Monday that any retaliation to France's new digital services tax could "deeply and durably" damage relations.

Washington has threatened to impose duties of up to 100% on imports of champagne, handbags and other French products worth $2.4 billion after a U.S. government investigation found the French tax would harm U.S. technology companies. "If the Americans decide to go ahead and impose sanctions against the digital tax ... in this case, we would retaliate," Le Maire told France Inter radio.

"If there were to be sanctioned, and it is a possibility that we will take sanctions, we would immediately contact the WTO (World Trade Organization)", he added. Le Maire said he had sent a letter on the issue to U.S. trade negotiator Robert Lightizer and was also going to discuss it with U.S. Treasury Secretary Steven Mnuchin by phone.

"If the U.S were to decide to impose trade sanctions against the EU over the French Digital Services Tax, it would deeply and durably affect the transatlantic relationship at a time when we need to stand united", the minister wrote in the letter seen by Reuters. Le Maire also said in the letter that France was “in touch with the European Commission and the other EU Member States on the subject” and that they were “contemplating the various options to defend our trade rights in a proportionate and determined manner, as we have in the past,”.

Paris has long complained about U.S. digital companies not paying enough tax on revenues earned in France. In July, the government decided to apply a 3% levy on revenue from digital services earned in France by firms with more than 25 million euros ($28 million) in French revenue and 750 million euros worldwide.

The European Union has said it will stand by France in the dispute with the United States. ($1 = 0.8957 euros)

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