EU challenge to UK’s VAT treatment of derivatives trades

The EU is investigating the UK’s VAT treatment of commodity derivatives trades over concerns that it has not paid enough tax under single market rules

Currently the UK does not apply VAT to derivatives transactions in spot, futures and options on commodities contracts, if they are traded on an exchange. The European Commission says it has begun infraction proceedings against the UK in respect of VAT treatment of certain commodity derivatives, trading under the terminal markets order (TMO).

The TMO is a statutory instrument that allows a specific VAT zero rate for derivative transactions in spots, futures (and options on) commodity contracts, when traded on an exchange.

The Treasury has confirmed that it has received a ‘letter of formal notice’ from the EU Commission, which is the first stage of the infraction process. The letter sets out the Commission’s initial views on the UK’s VAT treatment of certain exchange traded commodity derivatives, and invites a response from the UK government within two months.

Two of the EU’s largest commodities exchanges, Intercontinental Exchange and the London Metal Exchange, are based in the UK, as are a number of smaller specialist markets and a network of brokers and other commodities trading houses.

In a statement the Treasury said: ‘The UK government will consider the Commission’s views and will respond in due course. The issuance of the letter does not have any immediate effect on UK tax law and the matter will be subject to the normal infraction process, which is open to challenge.

‘The tax treatment of commodity derivatives is unchanged. UK tax law stands unless and until such time as it is changed and therefore past and current trading activity under the TMO is not affected by the issuance of the Article 258 letter.’

Report by Pat Sweet

Be the first to vote