The Republic's attractiveness to foreign multi-nationals has been dealt a significant blow by the British government's decision to seek more tax from some British subsidiaries based in the Republic.
The move, announced without warning last Tuesday, is set to spark a major argument between the Minister for Finance, Mr McCreevy, and his British counterpart, Mr Gordon Brown.
Currently manufacturing firms and International Financial Services Centre-based companies pay just 10 per cent Corporation Tax, while all others pay 16 per cent. From next year, all will pay just 12.5 per cent.
The UK's rate, however, is 30 per cent.
Ireland's low rate has frequently attracted bitter opposition from other EU members, who argue it has taken jobs from them.
From September 20th, however, British companies will have to make up the 18 per cent difference between Irish and UK tax on the already-taxed profits of their Irish subsidiaries, unless they win UK Inland Revenue exemption.
The change could affect dozens of British subsidiaries, such as the retail operations of the Ulster Bank and Bank of Scotland (Ireland) accountancy sources said.
Currently, UK companies based in the International Financial Services Centre pay a top-up to the British Exchequer because of the Republic's 10 per cent rate.
But manufacturing firms such as the Diageo-owned Guinness should remain unaffected since they already qualify for an Inland Revenue exemption.
If followed by other EU countries, the move could stop foreign industries setting up in the Republic , particularly if they refuse to exempt subsidiaries of manufacturing companies, as the British intend.
