A Danish government ruling has given the country’s IT outsourcing business a strong boost by exempting its financial sector from value added tax (VAT) for IT outsourcing contracts.
The Danish Tax Ministry has lifted the 25% tax, which has been a hurdle specific to the financial sector in outsourcing, as it does not have to pay VAT if it keeps IT in-house, but does if it outsources. This means that outsourcing providers need to be at least 25% more efficient just to begin making a deal worthwhile. Despite this, the take up of outsourcing by financial services has been high.
Whether other European countries will follow Denmark’s lead is unclear. In the UK, financial services companies are not allowed to charge VAT to their customers, but if they outsource their IT to a third-party supplier, they are forced to pay 17.5% VAT.
This article is based on material originally produced by ComputerWire.