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UK metals bourses unfazed by European Commission VAT action against UK

  • Author
  • Ben Kilbey    Annalisa Villa    Diana Kinch
  • Editor
  • Geetha Narayanasamy
  • Commodity
  • Metals

London — UK-based metals bourses were unfazed after the European Commission's decision to refer the United Kingdom to the Court of Justice of the European Union for failing to charge value added tax on certain commodity trades on exchanges -- a practice which the EC claims is not in line with EC regulations and distorts market competition. A spokeswoman for the London Metal Exchange on Friday said: "The LME notes the ongoing infraction proceedings against the UK in respect of the VAT treatment of certain commodity derivatives, trading under the TMO. The LME continues to work with its stakeholders to ensure ongoing effective trading on the LME's market." The London Bullion Market Association, representing players on a wholesale over-the-counter market for the trading of gold and silver, took a similar stance. "We continue to monitor the situation closely but our view is that it's business as usual," an LBMA spokesman said Friday. The UK has a derogation or exemption from EU rules that allows it to apply zero-rate VAT to derivatives trades on 11 commodity exchanges, including the London Metal Exchange and the London Sugar Terminal Market, under certain conditions. However, the EC said in a January 24 statement that since this derogation was notified to the Commission in 1977, the UK has extended the scope of the measure considerably, meaning that it is no longer limited to trading in the commodities originally covered. Under EU rules agreed by all member states, this type of "standstill" derogation cannot be extended in scope, the statement continued. "It also generates major distortions of competition to the detriment of other financial markets within the EU." The EC argued that it referred the UK to the Court of Justice because any exceptions to EC VAT policy needed to be referred to the commission before January 1, 1978, and failure to do so put the UK in breach of EU VAT regulations. While some market observers consider the new law case to be little more than a storm in a teacup, the UK government has indicated it is set to firmly fight the EC's case, which it fears is a move that could detract from the City of London's competitiveness after the UK leaves the European Union late March. --Ben Kilbey, ben.kilbey@spglobal.com

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--Annalisa Villa, annalisa.villa@spglobal.com

--Diana Kinch, diana.kinch@spglobal.com

--Edited by Geetha Narayanasamy, newsdesk@spglobal.com