It is reported that the European Commission is planning to take a case to the European Court of Justice (ECJ) in relation to the value added tax (VAT) treatment of commodity traders in the UK.

The European Commission argues that although the UK may apply a zero rate of VAT to commodities contracts traded on terminal markets such as the London Metal Exchange (LME) it has gradually widened the application of the zero rate over time to create a definition that includes trading commodities options and futures contracts. The VAT zero rate is therefore no longer limited to trading in the commodities as originally covered. The European Commission claims that the legislation has been amended at least eight times by the UK without asking for advice from the EU.

The UK claims that it is justified in its actions under the “standstill” rules that allow the rate that was applied before a cut-off date in 1997. At that date the UK was granted a waiver to charge the zero rate on some commodity markets. The UK is likely to vigorously defend its viewpoint as this VAT treatment is regarded as important in ensuring that London remains a leading commodities trading hub.

Under the current Brexit agreement negotiated between the UK and the EU the UK would be required to abide by rulings of the ECJ in cases that were launched while it was an EU member state or during the transition period.