It could be at least three years before last year's controversial ruling on the taxation of outsourced insurance services becomes law in the UK, tax experts have predicted.

The European Commission (EC) has launched a public online consultation in a bid to modernise VAT legislation for insurance and financial services.

One area it will look at is the issue of whether insurers should be charged VAT on outsourced services. This follows a ruling by the European Court of Justice last year that outsourced back office services no longer qualified for exemption from VAT.

The British government was due to amend legislation in response to the judgment in January 2006, but delayed making changes until after the EC's consultation. The EC intends to submit legislative proposals before the end of 2006 to update the sixth directive.

Paddy Behan, VAT director at financial and business tax advisers Grant Thornton, said it was not "unreasonable" to suggest that changes would not to happen until 2009.

Alan Connell, VAT director at law firm Eversheds, said: "People will be hoping that the EC can implement changes as quickly as the system will allow, but it is probably going to take a couple of years to agree on an amended sixth directive as it requires unanimity from all 25 member states."

The European Commission is considering consultation responses from around 250 insurers across the EU in its investigation into anti-competitive practices.

An announcement on the consultation, which concluded on 21 April, is expected in the autumn.