Tax advisers at KPMG said that insurance companies which outsource business could be faced with a substantial tax bills if an EU court ruling is followed.
The company said if the advocate general's opinion in the case of Accenture versus the Dutch Ministry of Finance at the European Court of Justice is followed, it would impact the way insurance companies make outsourcing decisions.
The case centres around the services provided to Netherlands-based Universal Life and whether Accenture should charge VAT on those services.
The outcome of the case will determine who is deemed to be an insurance agent and what services are deemed to be insurance related. This will have an impact upon determining the scope of VAT exemption under EU law.
KPMG head of financial services indirect tax team Frank Sangster said: “A typical outsourcing contract can be anything from £500,000 to £100m per annum and therefore the additional VAT, which would not have been budgeted for, could reach up to nearly £20m per annum.
“When you consider that such contracts are commonly entered into on a long term basis often for as much as 10 years, this is clearly a significant issue.”
