UK VAT on Commodity Derivatives Trading – A Matter for the EU Court?
The UK government is reportedly prepared to resist the European Commission’s challenge in the Court of Justice of the European Union (CJEU) over the UK’s VAT treatment of commodity derivatives trading.
The Commission has issued a formal notice of infraction proceedings (dated 8 March 2018) as well as a reasoned opinion (dated 19 July 2018) to the UK. Both communications are pursuant to Article 258 of the Treaty of the Functioning of the European Union (TFEU), and concern Article 394 of Directive 2006/112/EC (the VAT Directive) on derogations related to certain commodity derivatives trading under the Terminal Markets Order 1973. This Order is a statutory instrument that permits for exchange-traded derivative transactions in spots, futures and options on commodity contracts to be zero-rated for UK VAT. The zero-rating of these transactions is a permitted special measure under Article 394, which allows Member States to simplify VAT collecting rules. The Commission takes the view that the development of the UK’s zero-rating treatment of such transactions now contravenes EU VAT rules, and requests that the relevant UK VAT rules should be aligned with EU rules.
The March formal notice referred to the UK’s extension of the scope of a VAT derogation that consists of zero-rating transactions carried out on a number of commodity markets. The Commission contends that since the UK notified that derogation to the Commission in 1977, the UK has considerably extended the scope of the measure, which is no longer limited to trading in the commodities originally covered by the derogation. The Commission further holds that the extension of the scope of such a ‘standstill’ derogation is not permitted under EU law. The Commission adds that the derogation is also generating ‘major distortions of competition to the detriment of other financial markets within the EU’, following some informal complaints from other Member States.
As the UK did not act within the stipulated two months since the date of the formal notice, in line with procedure the Commission has now sent a reasoned opinion to the UK government. For the time being and pending any legislative changes, the UK’s tax treatment of commodity derivatives remains as before. However, if the Commission considers the UK’s response to its communications to be insufficient, it can bring the matter before the CJEU.
An Assessment to Tax is never ‘stale’, but it might be out of date: HMRC v Tooth
This article briefly discusses the key points arising out of the decision of the UK Supreme Court in HMRC v Tooth  UKSC 17. The case considered (1) whether a discovery assessment could become “stale” and (2) the meaning of the phrase “deliberate inaccuracy”.
VATA 1994 s.47, Agency, Onward Supply Relief, & Double Taxation
On 12 July 2021, the First-tier Tribunal (Tax Chamber) (“FTT”) released its decision in Scanwell Logistics (UK) Limited v HMRC  UKFTT 261 (TC), rejecting the taxpayer’s claim for onward supply relief (“OSR”).
Whilst OSR is now limited, post-Brexit, to goods imported into Northern Ireland for onward supply to the EU, the FTT’s discussion of agency under section 47 of the Value Added Tax Act 1994 (“VATA”) is of broader interest.
The case serves as a reminder of the significant financial consequences that can result from errors in tax planning, as Scanwell was ultimately held liable for £5.7 million in unpaid import VAT despite the fact that the imported goods almost immediately left the UK (which, if properly planned, could have meant Scanwell was relieved from liability to import VAT).
Draft Finance Bill 2022—tax avoidance measures
Helen McGhee, senior associate at Joseph Hage Aaronson LLP, considers the draft Finance Bill 2022 clauses published on 20 July 2021 in relation to tax avoidance and recent updates to the tax avoidance regime.
Getting Closer: A Global Minimum Tax on Corporations
On 1 July 2021, US Treasury Secretary Janet Yellen announced that countries representing over 90% of global GDP had agreed to a global minimum tax on corporations (“GMCT”). The GMCT seeks to put a floor on tax competition on corporate income through the introduction of a minimum corporate tax of at least 15%. Whilst certain elements give rise to positive expectations, some caveats should be noted. Much will depend on (1) the outcome of future political negotiations and (2) the detail of the drafting at international and national levels.
The DBKAG & K (CJEU) decision: an opportunity for investment funds?
On 17 June 2021, the European Court decided the joint cases K (C-58/20) and DBKAG (C-59/20) regarding whether the supply of certain services constituted the “management of special investment funds”, benefiting from the VAT exemption enshrined in Article 135(1)(g) of Council Directive 2006/112/EC.