Merkel: Brexit-bound Britain might copy EU's low tax islands

German Chancellor Angela Merkel said on Monday that Britain might end up following the example of other islands in the European Union with low tax rates when it quits the bloc.

Merkel, who said it was already hard to organise fair tax competition in Europe, also announced plans for a Franco-German corporation tax reform.

Speaking to non-governmental organisations in Hamburg before she hosts a G20 summit there next month, Merkel said: "I don't want to pillory anyone but the island states of Ireland, Malta and Cyprus say: we have a bad geographical location, we're at such a disadvantage, we can only attract companies by having very low taxes."

She added: "And when, within the context of Brexit, Britain one day decides to step into this tax competition too, then of course that would be a huge challenge for countries."

Germany and France will therefore attempt a joint corporation tax reform via a common tax assessment framework "so that at least two countries can be a role model", she said, adding that this could also be a blueprint for a global tax system.

The G20 summit is due to take place in Hamburg in early July. On July 13 the governments of Germany and France will meet in Paris for the Franco-German Council of Ministers, where they want to make proposals for closer cooperation in areas such as tax.

In a manifesto document ahead of a June 8 election, Britain's Conservatives - who emerged as the largest party but lost their parliamentary majority - said corporation tax would be cut to 17 percent by 2020.