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EU - German case may lift multi-million UK financial services VAT threat

  • Mar 10, 2015 | Richard Asquith

EU - German case may lift multi-million UK financial services VAT threat

New legal action by the European Commission (EC) against Germany may put to rest a long-standing EU threat to raise the outsourcing tax bill of UK banks and insurers my hundreds of millions of pounds.

EC takes Germany to European Court of Justice

Last week, the EC referred Germany to the European Court of Justice (ECJ), the highest court of appeal for EU legal issues regarding its narrow group German VAT rules. The rules limit VAT exemptions on outsourcing of shared services to just the health sector. The EC had already warned Germany in June 2011 that excluding banks, insurers and others from this benefit was in contravention of the EU VAT Directive. Since Germany has taken no action, the EC has moved to the next step in proceedings, a court hearing at the ECJ.

VAT threat to UK banks and insurers

If successful, the case will overturn a 2005 ruling (Andersen C-472/03) that banks or insurers were not entitled to VAT exemptions on their outsourced administrative operations. In the UK, HMRC decided to continue with the exemption for the time being due to uncertainties. However, German and other EU member states, attempted to force through the removal of the exemption via the failed EU VAT Directive on Financial Services.

After many years of fearing a devastating multi-million pound VAT bill, UK and Irish financial services institutions will be relieved that the Commission is looking to formalize the tax exemption through an ECJ hearing with Germany.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He can be contacted at: He is part of the European leadership team which won International Tax Review's 2020 Tax Technology Firm of the Year. Richard trained as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.