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Sarkozy attacks Ireland's company tax rate

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

His comments came amid growing expectations that the 5.7pc interest rate on bailout loans of €67.5bn could be cut.

It is understood that Irish representatives could raise the issue as early as next week as part of a review of the EU/IMF bailout at a meeting of finance ministers.

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

But Fine Gael finance spokesperson Michael Noonan believes an interest rate of 3pc should be applied.

He added his party aims to renegotiate it down to a lower level if it is successful in the upcoming election.

"The first tranche of money transferred to Ireland was borrowed by our European partners at 2.9pc and while there may be brokerage handling charges that would increase this slightly, the rate we pay back should be no higher as the one loaned to Europe," he said.

But Mr Sarkozy's comments have put the spotlight back on our 12.5pc corporation tax rate, one of the lowest in Europe.

"I deeply respect our Irish friends' independence and we have done everything to help them," he said yesterday. "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 33pc 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 were "dangerous" in the context of the debt pressure the existing high bailout interest rate would put on the Irish economy.

Economic progress

"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.

Ms Coughlan said reports that eurozone finance ministers were planning to discuss a reduction in the rate on the bailout were "speculation".

But she said the country would welcome any developments that would give effect to the lowering of the interest rate for Ireland.

Meanwhile, an expansion of the EU bailout fund or the European Financial Stability Facility (EFSF) is also being discussed in Europe ahead of a potential failure of another member state.

European Central Bank chief Jean Claude Trichet also backed the move.

"We are asking governments to improve the EFSF in quantity and in quality, meaning flexibility in the intervention of the EFSF -- maximum flexibility," he said.

Currently the fund can only lend around €250bn, despite being backed by guarantees of up to €440bn, because of a requirement to maintain a huge capital buffer.

EU officials are looking into how this can be done without the fund losing its triple A credit rating.

Irish Independent