German finance minister Peer Steinbrück yesterday accused Ireland of subsidising its public services with EU funding while engaging in unfair tax competition.

In a stinging public attack on Irish corporate tax policy, Mr Steinbrück said states such as Ireland risked jeopardising the EU idea if they continued in this manner. "It is unfair to reduce tax rates and get money from the EU to finance public spending.

"Ireland is offering tax rates [ that are] very advantageous and organising this tax competition," Mr Steinbrück said while chairing an EU finance ministers meeting. "Some countries are concerned about using certain techniques to fund their public finance requirement in the hope that if they do not have sufficient income it will be compensated by EU funds," he said

The criticism from Germany, which holds the six-month rotating presidency of the EU, followed a discussion on a proposal to harmonise the EU corporate tax base. Ireland strongly opposes this idea, which has been floated by the taxation commissioner Laszlo Kovacs as a way to boost efficiency and investment in the EU.

At yesterday's meeting in Luxembourg, Ireland, along with several other member states, restated their trenchant opposition to the measure. The Government fears that harmonising the base on which corporate tax is levied will inevitably lead to a harmonisation of the corporate tax rate.

But Ireland's continued public campaign to undermine the commission's harmonised tax base plan is creating ill-feeling in the 12 or so states that favour the proposal.

Mr Steinbrück cited the tax reliefs available in the "Dublin Docklands" - commonly known as the International Financial Services Centre - as an example of using low tax rates to attract industry and engage in tax dumping. He also cited tax relief schemes in the Netherlands as examples of unfair tax competition that were undermining co-operation in the EU.

"There is a clear interest in Europe in certain countries to make their tax attractive to influence where they [ multinationals] locate and it is not a diplomatic disgrace to say it," added Mr Steinbrück, who added that young people in Germany were asking him to ask these questions of other EU states.

Germany has long been a staunch critic of Ireland's low corporate tax policy, which it accuses of unfairly attracting investment from abroad. But rarely has a German minister spoken out so publicly against it.

Mr Steinbrück also said Ireland had nothing to fear from the corporate tax base harmonisation proposal.

This proposed EU policy did not amount to the harmonising of tax rates, he said.

Mr Kovacs acknowledged there was still opposition to his proposal and there had been no shifts in position expressed at yesterday's meeting.

Ibec strongly criticised Mr Steinbrück's comments, calling them "disgraceful, and unbecoming of a president in office of the Ecofin council".