Accenture Ruling Deals Blow to Outsourcing

Filed in archive Outsourcing News on March 12, 2005

Consulting firm Accenture received a VAT ruling by the European courts. This ruling will also Affect other insurance and outsourcing companies.

Last week, European courts decided that Accenture would have to pay VAT on certain services (acceptance and checking of insurance applications) that have been provided by an outsourcing company. The ruling on the Accenture case is a benchmark for the outsourcing industry, and will thus affect other companies.

Peter Jenkins, global head of indirect tax at Ernst & Young, said that the ruling could be very costly the outsourcing industry, and would have "massive" implications for the insurance industry. Jenkins added, "It will hit margins and force up premiums, or turn profitable contracts into loss makers."

The ruling reduces the amount of VAT-free insurance provided by outsourcing companies. Tim Pullan, IT and outsourcing partner at Lawrence Graham, said, "If VAT is now applicable you have to try even harder because you have an extra 17.5% [to absorb]."