UK GDP will fall under Europe-wide tax base

THE UK'S gross domestic product will fall under plans by the EC to introduce a common corporate tax base.

Under the plans, which would make tax payments across EU countries easier to define, the UK would see GDP fall slightly, by 0.05%.

GDP for the EU as a whole would fall by 0.15%, according to research on behalf of the EU by the Oxford University Centre for Business Taxation at Saïd Business School.

A common tax base would have virtually no net effect on employment or wages in the EU, the report found.

Under the EC's proposals company taxable profit would be defined, declared as EU-wide, then allocated to member states using a simple formula based on capital, employment and sales. Each country would apply its own tax rate to the allocated proportion of profit.

The ICAEW said that the premise of the consolidated tax base was sound: making trading easier; minimizing disputes and reducing compliance costs.

However, the new system will run concurrently with the old model - which will impose administrative burdens on member states - and some will be better off than others under the scheme. On that basis, the institute wants the scheme to be voluntary for member states.

"As always the devil will be in the detail, and it is critical that that the measures proposed will work in practice," said Frank Haskew, head of the ICAEW's tax faculty.