French central banker nods to Ireland in ‘race to the bottom’ tax comments

Ireland’s corporate tax regime has been highlighted by the governor of the Bank of France, who has raised the danger of a “race to the bottom” in taxing corporate profits.

Speaking at a seminar in Dublin to mark the 75th anniversary of the Central Bank of Ireland, François Villeroy de Galhau referred to the risks from "a race to the bottom of corporate tax rates", which he said raised fairness issues. He added that this was "pointed out sometimes in relation to Ireland" and its corporate tax regime. He warned too that recent US tax reform, while it would boost US growth in the short term, also risked worsening global imbalances.

Ireland’s corporate tax regime, centred on the 12.5 per cent rate, has long been criticised by France and reform of EU corporation tax has been targeted as a key policy area by president Macron.

Mr Villeroy added to warnings from ECB figures about the danger of any attempt to talk down the value of the US dollar. The ECB has reacted strongly to comments in Davos by US treasury secretary Steve Mnuchin that a lower dollar was good for US trade.

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Mutual trust

The French governor, while not mentioning the US , referred to recent “unfortunate declarations” and pointed out that at an IMF meeting last autumn, all major countries had agreed not to engage in competitive devaluations. Doing so would be a breach of mutual trust, he warned.

He also cautioned that protectionist trade policies only added to inflation and hurt growth in the long term.

The ECB would follow a “predictable sequence” in withdrawing the stimulus of current monetary policy, he said. Among the factors taken into account would be developments in inflation and the euro exchange rate.

Whether the ECB stops its policy of bond buying in September or tapers it off more gradually is not an “existential question”, he said. The so-called quantitative easing programme is due to end in September, at the earliest. However, Mr Villeroy, who sits on the ECB’s governing council, said that what was important was the entire ECB policy package, including its stock of assets and the guidance it gave to the markets.