A statement from HM Treasury regarding the European
Commission’s notification of infraction proceedings on
the UK’s VAT treatment of certain commodity derivatives
trading.
On 15 May the European Court of Justice issued its ruling
in this case. We are reviewing the decision of the Court
and will provide further details on next steps in due
course. The decision does not require businesses to pay
any VAT on historic transactions, and the law applying to
derivatives trades today means no VAT is due. That will
remain the case while the UK considers next steps in the
light of the ruling.
The European Commission on 8 March 2018 provided
notification of 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 (SI) that allows a specific VAT zero
rate for derivative transactions in spots, futures (and
options on) commodity contracts, when traded on an
exchange.
The UK received a “letter of formal notice” from the EU
Commission pursuant to Article 258 of the Treaty on the
Functioning of the European Union. This 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.
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
Terminal Markets Order is not affected by the issuance of
the Article 258 letter.
