European Court Deals Blow to Financial Services Outsourcing Sector

A recent decision of the European Court of Justice is likely to lead to significant cost increases for many financial services companies which have outsourced "back office" functions.

Earlier this month, the Court ruled that the outsourced back-office services, including claims handling and dealing with insurance applications, provided by Accenture to Dutch life insurer Universal Leven NV (UL), were not exempt services for VAT (sales tax) purposes. Accenture had argued that these services were exempt under the European 6th VAT directive, on the basis that they were "services related to insurance transactions performed by insurance brokers and insurance agents." Accenture had a relationship with both the insurer and policyholder, which was a condition for recognition as an insurance agent. Accenture pointed to several characteristics of its relationship with the insurer, such as its ability to commit UL to binding insurance contracts, to support its claim.

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