The Government's decision to cut corporation tax rates from 16 per cent to 12.5 per cent is costing the exchequer €400 million a year, according to official Department of Finance figures.

The latest data available for comparison by the Revenue Commissioners are from 2003, Minister for Finance, Brian Cowen, told Sinn Féin TD, Arthur Morgan, in a Dáil reply.

"[The] tax forgone through reducing the standard rate of corporation tax from 16 per cent to 12.5 per cent is estimated to be of the order of €400 million," the Minister wrote.

Following hard-fought talks in 1996 led by the then finance minister, Ruairi Quinn, the European Union accepted that Ireland could cut corporation tax rates for all businesses significantly.

Up to then, manufacturing firms enjoyed a preferential rate of 10 per cent, while other firms, mostly domestically-owned, paid the full 32 per cent rate, though this figure was often substantially cut using exemptions.

The standard rate of corporation tax in the State held at 32 per cent until 1998, when it began to drop substantially in stages. By 1999, the rate applicable to trading income stood at 28 per cent.

From 1999, it fell by 4 percentage points a year until 2002 when it was cut to 12.5 per cent from January 1st 2003 for all businesses, foreign- or Irish-owned, manufacturing or otherwise.

However, the lower Irish rate has become increasingly unpopular in some of the larger continental countries, though many of the newer eastern European member-states have adopted the Irish model, and in some cases, have gone much further.

Meanwhile, the US internal revenue service has begun to pay increased attention to the decision of US multinationals to funnel much of their global income through Irish-based subsidiaries, thus cutting their tax bills.

Despite the rate cut, the 1996 decision has led to a major rise in overall corporation tax revenues, from about €2,160 million in 1997 to close to €5,330 million last year.