French and Germans attack principle of single market for IT services in Europe

The European Commissionís agreement last week to water down a new EU Directive that would have created a single market for IT services in Europe could limit the future job opportunities of UK IT contractors warns giant group plc, the contractor services provider.

The EU Services Directive, which was due to come into force across Europe from 2005, proposes that providers of services should be subject to control in their country of origin rather than their host state. This means that UK IT staffing companies who operate in accordance with UK laws should be subject to UK laws in the Eurozone, rather than the morass of complex local laws that currently exist across the EU.

Last week a spokeswoman for Jose Barroso, the European Commission president, said: The Commission has been very clear that we will not withdraw the directive, but we will look at various aspects of the directive; particularly the aspects that have been causing trouble, including the country of origin principle and the sectors covered by it.

Matthew Brown, Managing Director, giant group, comments: Itís clearly disappointing that the Commission is buckling to Franco-German demands. What is particularly alarming is that the ëcountry of originí principle, which is the cornerstone of the Directive, is being questioned in such a fundamental way.

We would expect the UK to dig its heels in on this issue. The French and Germans need to recognise that protecting their own economies from competition is unlikely to help them in the long term.

According to giant group, the Directive specifically mentions IT as an area where service provision needs to be harmonised. Although France and Germany have so far not rejected the principle of a single market for IT services, they have called for public services and healthcare to be excluded from the law, claiming the Directive poses a threat to wages and social standards in richer EU member states. However, some commentators believe that in pushing for these exclusions the very ëcountry of originí principle is being undermined.

Matthew Brown says: Itís difficult to see what case the French and Germans can make for protectionism in the private sector, especially in relation to IT services, but it can only be a matter of time surely.

According to giant group, the EU Services Directive is potentially of greatest benefit to relatively lightly regulated, low tax economies, like the UK.

Matthew Brown explains: Companies based in lightly regulated economies like the UK stand to benefit the most from this Directive, as light regulations will be standardised for their work across the EU. For companies based in heavily regulated economies, such as France or Germany, this advantage is not available.

Most Eurozone economies donít utilise IT contractors on a scale anything like the UK, mainly because of the regulations and bureaucracy involved. This Directive could make it easier for them to adopt a more flexible IT workforce by bringing in UK contractors who would be compliant with UK rather than local law.

Matthew also points out that the UK has the largest temporary workforce and staffing industry in Europe, meaning UK recruiters and IT contractors are uniquely placed to capitalise on the single market for IT services which the EU Services Directive could still create.

UK contractors working in the Eurozone should pay UK tax

According to giant, many UK IT contractors could find working in the Eurozone an enticing proposition, not least because the current draft of the Directive suggests that UK limited company IT contractors working abroad would be subject to UK tax laws.

Matthew Brown says: If UK contractors are allowed to work in the EU whilst still paying UK tax, the Directive could be a real benefit. The UK is still a fairly low tax economy compared to the rest of Europe and contractors will feel much more comfortable dealing with the Inland Revenue than foreign tax authorities.