UPDATE 1-Ireland says won't yield on corporate tax

Thu May 26, 2011 11:51am EDT

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* Sees 'greater understanding' but no agreement

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* Reiterates aims to raise sovereign debt by end 2012

(Adds additional details throughout)

By Christian Plumb

PARIS, May 26 (Reuters) - Ireland will not raise its ultra-low corporate tax rate despite pressure from France and Germany, even if that means paying higher interest rates on EU bailout loans, Finance Minister Michael Noonan said on Thursday.

"We're not for turning on this issue. We're prepared to pay the price," Noonan told reporters after talks with his French counterpart, Christine Lagarde, on the sidelines of an OECD meeting in Paris.

Noonan's comments came a day after Ireland's Deputy Prime Minister Eamon Gilmore told Reuters Insider TV his country was "having difficulty" in talks with the European Union and International Monetary Fund about the cost of its 85 billion euro ($119 billion) financial aid package. Asked if he was making headway with France on the issue, Noonan said: "We think when we explain things to reasonable people, they respond ... I feel like there's a greater understanding of my position."

But he acknowledged that the two sides "certainly didn't agree on anything" and declined to forecast when Dublin might receive any reduction, already granted to Greece, in the average 5.8 percent rate on its rescue loans.

France contends that the 12.5 percent Irish corporate tax rate constitutes "fiscal dumping", luring foreign investment to Ireland and away from continental European partners. If Dublin wants EU help to reduce its borrowing costs, it should make big business share more of the burden, French officials say.

Noonan, who recently said all three euro zone countries that got bailouts needed cheaper aid to recover, said Ireland wants a deal on its own interest rate rather than trying to peg its borrowing costs to those paid by Greece or Portugal.

"I don't want to fix Ireland to a moving target," he said, adding that he expected Greece's situation to change again.

Asked about a warning by ratings agency Moody's that a Greek default, even in the form of a "voluntary" extension of bond maturities, could sap the creditworthiness of other euro zone debtors, Noonan said: "Whatever happens in Greece, I don't believe there'll be a serious contagion effect in Ireland."

Noonan voiced a fear that the reluctance of euro zone heavyweights like France and Germany to grant Ireland easier terms could strengthen euro scepticism in the country's domestic political arena.

"You can see a movement in public opinion already," he said. "While it's not mainstream, it's moving in that direction."

The finance minister, part of the recently elected government of Irish Prime Minister Enda Kenny, reiterated that the country hopes to borrow in sovereign debt markets late next year.

"The plan is at the back end of 2012," Noonan said, adding that such a move would be "circumstances permitting" and after what the government hopes will be successful efforts at borrowing on a secured basis by some of its crisis-hit banks.

(Editing by Paul Taylor/Ruth Pitchford)

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