EU tries to force UK to charge VAT on metals and commodities trade

Action by the European Commission to have Britain levy value added tax on trading platforms such as ICE Futures Europe, London Platinum and Palladium Market (LPPM) and London Metal Exchange (LME).

The Commission has been reviewing a zero-rate VAT on derivatives trading in the UK for several years now, but sources say recent activity is one of the pressure factors on the UK ahead of its exit from the EU in March.

Last month, the Commission referred the UK to the European Court of Justice to expand the scope of measures that allow zero VAT rates for commodity derivatives traded in “terminal markets” in the UK.

“The (referral) follows from the UK's failure to bring its legislation in line with EU VAT legislation following a reasoned Commission opinion in July 2018,” reads the official website of the Commission, the EU's executive body.

If Britain leaves the EU without a deal, there will be no solution. But any deal where the UK is subject to EU rules could mean significantly higher costs for the European commodity trading community.

“This is the latest stage in ongoing discussions with the Commission over the VAT regime for certain commodity derivatives in the UK,” the UK Treasury said.

The Terminal Markets Order (TMO), which allows zero VAT to be applied to trade in commodity derivatives, was agreed in 1973.

“Why didn't it come to this? They are trying to kill our commodity markets, ”said a commodity source.

He added that the UK authorities made sure that "everything was in order" as trade in commodities has expanded over the years.

Crude oil, natural gas, electricity, coal, emissions and commodities futures and options contracts are traded on ICE Futures Europe. ICE declined to comment.

LPPM is an OTC mall for platinum and palladium. It is an association of members, not an exchange.

LPPM consultant Ann Dennison said she was in control of the situation.

Base metals such as copper, aluminum and zinc are traded on the LME, one of 11 original exchanges named after the UK's accession to the European Union.

“The LME continues to work with its stakeholders to ensure continuous efficient trading in the LME market,” the exchange said.

Paris-based Euronext applies the standard VAT rate for financial services on transaction fees for its derivatives markets.