Sarkozy criticises Irish tax rate


French president Nicolas Sarkozy has said Ireland cannot benefit from the European Union's financial aid while maintaining its low corporate tax rate.

"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]," Mr Sarkozy said near Toulouse in southern France today.

"We cannot speak about economic integration without the convergence of fiscal systems… With [German Chancellor Angela] Merkel, we are going to reinforce European economic integration and we're going to progress towards fiscal convergence."

The terms of Ireland's €85 billion bailout by the EU and the International Monetary Fund do not require any change to the corporate tax rate of 12.5 per cent, despite pressure from some European states for it to be on the table during discussions last November.

Ireland's rate is considerably more competitive than France's, at 33 per cent, and Paris has long accused Dublin of "fiscal dumping", or unfairly attracting investment, by keeping it so low.

Speaking last November, Mr Sarkozy said there were no "fiscal demands" stipulated in the rescue fund mechanism. However, "independently of what I have just said... it goes without saying that, confronted with a situation of this kind, there are two levers to activate - that of spending and that of revenues," he said.

"I cannot imagine that our Irish friends, in full sovereignty, would not use this because they have more room for manoeuvre than others, their taxes being lower than others'. It's not a demand, just an opinion."

His remarks were echoed by French finance minister Christine Lagarde, who said last year that it was “quite desirable that Ireland use the taxation lever to reduce its budget deficit”.

Reacting to Mr Sarkozy's comments, Labour MEP Alan Kelly said Ireland must be prepared
for a major European battle on the issue.

“The comments by Nicholas Sarkozy are both short-sighted and dangerous. Short-sighted in that they are designed to appease other member states and the French public.

However they are dangerous in that the EU/IMF deal is putting extremely heavy debt pressure on Ireland - more pressure than we can bear," Mr Kelly said.

“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."