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Commission v United Kingdom of Great Britain and Northern Ireland (Case 276-19)

  • United Kingdom
  • Financial services and markets regulation - Derivatives
  • Tax planning and consultancy


What has happened?

The Court of Justice of the EU (the “CJEU”), on 14 May 2020, handed down its judgment in the infringement proceedings brought by the European Commission against the UK concerning the UK’s value added tax (“VAT”) zero-rating of commodity trading on certain terminal markets. Read our previous briefing "EU Commission challenges UK’s VAT treatment of trading on certain UK commodity markets" for further information on the complaint.

The CJEU has determined that the UK incorrectly extended the scope of the UK zero-rating provided for in the Value Added Tax (Terminal Markets) Order 1973 (the “TMO”)) by adding to its scope a number of commodities markets that were not listed in the original notification made by the UK to the Commission seeking a derogation from the EU VAT code which the UK is bound to apply.  The CJEU has decided that by so extending the zero-rate the UK is in breach of its obligation to obtain the EU Council’s approval in accordance with Council Directive 2006/112/EC (the “Principal VAT Directive”).

UK legislation (the TMO) allows a specific VAT zero-rate for derivative transactions in spots, futures (and options on) commodity contracts, when traded on an exchange. The EU Commission says that the derogation permitting this special VAT zero-rate has been considerably extended. It is alleged, by the EU Commission, that the scope of the UK’s special VAT regime is no longer just limited to trading in commodities originally covered by the derogation permitted by the EU Council in accordance with the PVD (or the previous equivalent EU law). The Commission alleges that this is a breach of EU VAT law and is generating major distortions of competition to the detriment of other financial markets within the EU. 

What did the CJEU decide?

The CJEU has determined that the TMO has been substantially amended since the derogation was formally notified to the Commission on 28 December 1977.  Specifically, the UK government has extended the VAT zero-rating to cover derivative transactions on the following exchanges: the London Potato Futures Market, the International Petroleum Exchange of London, the London Meat Futures Market, the London Platinum and Palladium Market, the London Securities and Derivatives Exchange Ltd and the London Bullion Market.  The TMO was also extended to allow zero-rating for transactions in ICE Futures (i.e. commodity trades in natural gas, electricity and carbon emission allowances) as well as APX Power markets (electricity) in the late 1990’s and early 2000’s.

The CJEU has stated that the UK government’s decision to adopt temporary measures that extend the zero-rating (as well as the normal requirement to keep VAT records in certain circumstances) without submitting an application to the European Commission in order to obtain an authorisation (as is required under the PVD), the UK has failed to fulfil its obligations under that Directive.

In addition the CJEU has intimated “that the obligation to give notification at issue does not in any way prejudge whether or not the Council will adopt a positive position in any future decision it may issue”, which suggests that the UK could still seek a positive derogation on the additional markets whilst it is still subject to EU law.

What does this mean for you?

Although the UK is bound to observe the judgment of the CJEU, taxpayers are still entitled to rely on the current UK law which allows zero-rating of trading on the relevant markets.  It is possible that HM Treasury may consult with those directly impacted  as to the way forward in the light of this judgment.

If you would like to discuss the impact of this decision, please contact Giles Salmond, Richard Batchelor or Ed Griffiths.

EU Commission challenges UK’s VAT treatment of trading on certain UK commodity markets