LONDON (Bloomberg) ? Costs to insurers including Allianz AG, Europe?s biggest, for claims handling and computer management will surge as much as 25 percent after Europe?s highest court ruled the services aren?t exempt from value-added tax.

?This is bad news for insurance companies,? David Fownes, head of indirect tax and insurance at KPMG LLP in London, said in an interview.

The European Court of Justice in Luxembourg said today that back-office services provided by an outside contractor to a Dutch unit of Allianz are liable for taxes. The ruling means European governments will be forced to change their tax laws as insurance companies will be forced to include VAT, which is as high as 25 percent in Denmark and Sweden, on back-office services.

The UK allows for exemptions for back-office services and many large insurers take advantage of the rule, Fownes said.

?This ruling could mean up to 17 million euros ($22.3 million) a year for a big insurer that has outsourced a lot of services,? he said.

The Allianz unit at issue in the case is listed in court documents as Royal Nederland Verzekeringsgroep NV, Universal Leven NV. The services were provided by Accenture Insurance Services, formerly part of Arthur Andersen LLP.

Armin Guhl, a spokesman for Munich-based Allianz, had no comment on the ruling.

Tax consultants Ernst & Young LLP said in a statement that the ruling could cause some back-office service contracts to become unprofitable.

The Dutch Supreme Court referred the case to the EU high court.