The flow of firms relocating their bases to Ireland has stopped dead because the country is attracting bad publicity abroad, senior European advisers have warned.

Corporate tax experts Lydia Challen and Miles Walton at Allen & Overy, which advises international companies on the best locations to save taxes, said in the past they advised a number of firms to relocate head offices to Ireland.

But the country was now losing out because of the bad publicity it was attracting.

"People are driven by sentiment and there is a sense that Ireland has got its own financial difficulties," Challen said.

She said that negative headlines in international newspapers all "added up" to affect the decisions of business leaders.

Over a year ago Ireland benefited from uncertainties about British corporation tax plans and lured companies to relocate here.

But Challen said that fears had even surfaced that Ireland could be forced to increase its corporate taxes.

Allen & Overy's Walton said that the European Commission could in time still move to harmonise company taxes. "It has gone incredibly quiet. My understanding is that it could still be on the agenda," he said.