French, U.S. officials strike draft compromise on French digital tax

French and U.S. negotiators have reached a compromise agreement on France's digital tax, a levy which prompted U.S. President Donald Trump to threaten a separate tax on French wine imports, a source close to the negotiations said.

The compromise struck between French Finance Minister Bruno Le Maire, U.S. Treasury Secretary Steven Mnuchin and Donald Trump's White House economic adviser Larry Kudlow envisages that France would repay to companies the difference between a French tax and a planned mechanism being drawn up by the OECD.

The draft agreement will be submitted to Trump and French President Emmanuel Macron later on Monday at a G7 leaders summit in Biarritz.

"Trump's advisor is OK with the proposal," the source told Reuters. "That would be the mechanism at this stage, that's the joint proposal."

France's 3% levy applies to revenue from digital services earned by firms with more than 25 million euros ($27.86 million) in French revenue and 750 million euros ($830 million) worldwide.

U.S. officials complain it unfairly targets U.S. companies such as Facebook , Google and Amazon . They are currently able to book profits in low-tax countries such as Ireland and Luxembourg, no matter where the revenue originates.

Le Maire and his U.S. counterparts worked on finding a deal all weekend, first at the French finance minister's family house in the Basque countryside and later at a Sunday dinner in a Biarritz restaurant, the source said.

The row has been threatening to open up a new front in the trade spat between Washington and the European Union as economic relations between the two appeared to sour.

Trump had lambasted Macron's "foolishness" for pursuing the French levy and threatened to tax French wines in retaliation.

The French leader pushed hard in 2018 for a digital tax to cover EU member states, but met resistance from some other countries. He decided to go ahead with a national tax, which was signed into law in July and applies retroactively to Jan. 1, 2019.