No, they absolutely are allowed to set their own tax rates.
They are not allowed to offer individual companies preferential deals that differ from those tax rates.
Interesting case - http://www.bbc.co.uk/news/business-37216176
Particularly interesting in that the Irish government, who would receive billions of Euros, are expected to appeal [in order not to receive billions of Euros].
Sounds like the Irish government are quite happy to, presumably, trade...