Accenture ruling deals blow to outsourcing

Consulting giant Accenture was delivered a VAT hammer blow by the European courts last week, which could cause lasting knock-on damage for the insurance and outsourcing industries.

Link: Decisions – Outsourcing – Cost and effect

The ruling will mean that insurance companies will be forced to pay VAT on certain services that have been provided by an outsourcing company, including the acceptance and checking of an insurance application.

The case, which was first taken on by Andersen Consulting before it became Accenture, is understood to affect several other outsourcing companies using the Accenture case as a benchmark.

It could ultimately cost the industry ‘tens of millions’ according to Peter Jenkins, global head of indirect tax at Ernst & Young, and will have ‘massive’ implications for many companies operating in the insurance industry.

‘It will hit margins and force up premiums, or turn profitable contracts into loss makers,’ he said.

Tim Pullan, a partner in IT and outsourcing at law firm Lawrence Graham, said that the decision would be damaging for the industry. ‘If VAT is now applicable you have to try even harder because you have an extra 17.5% (to absorb),’ he said.

The decision ultimately reduces the amount of insurance outsourcing services that can be provided free of VAT under the EU sixth VAT directive.

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