EU VAT move could ease outsourcing costs

December 5th, 2007

European Commission VATThe European Commission is proposing to simplify the complex VAT rules for financial services institutions – a move that could encourage greater outsourcing of non core functions at many firms.

Financial services are exempt from VAT under rules dating back to 1977, which also means that they are generally unable to recover VAT charged by third party suppliers.

The rules mean that outsourcing usually carries an added cost for financials services firms. The European Commission is now proposing to allow financial institutions to manage the costs of non deductible VAT by allowing them to opt for taxation and by clarifying and extending the tax exemption for cost sharing arrangements.

Guido Ravoet, secretary general of the European Banking Federation, described the move as “a first step in the right direction” and called on the European Commission to do more to modernize the VAT rules.

“Greater certainty should in particular be established around the areas of the provision of payments services, derivatives, securities, custodial services and intermediaries,” he said.

The proposals follow last year’s decision by The European Court of Justice in the Abbey -v- HMRC case that outsourced fund administration services should be exempt from VAT.

Source: www.sourcingmag.com

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