Belfast Telegraph

Sarkozy issues tax threat to Republic

The Republic should not be allowed to access the EU/IMF bailout fund while maintaining a low corporation tax, French President Nicolas Sarkozy has warned.

His comments came amid growing expectations that the 5.7% interest rate on Irish bailout loans of €67.5bn (£57bn) could be cut.

It is understood Irish representatives could raise the issue as early as next week as part of a review of the bailout at a eurozone finance ministers' meeting.

The interest rate was negotiated by the current government with EU and International Monetary Fund officials and has been described by opposition parties as a "rip-off."

However, Fine Gael spokesperson on finance Michael Noonan believes an interest rate of 3% should be applied.

But Mr Sarkozy's comments have put the spotlight back on the Republic's 12.5% corporation tax rate, one of the lowest in Europe. Business groups north of the border have also lobbied for tax-setting powers to be devolved to Stormont, so that Northern Ireland can lower its corporation tax level.

The French President said: "I deeply respect our Irish friends' independence and we have done everything to help them.

"But they cannot continue to say 'come and help us' while keeping a tax on company profits that is half [that of other countries]."

The Irish rate is much more competitive than that of France where companies pay a rate of 33% and Paris has long accused Dublin of "fiscal dumping", or unfairly attracting investment, by keeping it so low.

And while the terms of the bailout do not require any change to the current rate, Labour MEP Alan Kelly said Mr Sarkozy's comments are "dangerous" in the context of the debt pressure the existing high bailout interest rate will put on the Irish economy.

"This means that changes to our corporation tax regime would wipe out any economic progress Ireland has made and we would remain relying on the EU forever," he said.

Tanaiste Mary Coughlan yesterday admitted the Government would "welcome" a lower interest rate for the IMF/EU bailout deal.