EU Sues Britain Over ‘Unlawful’ Tax Exemptions for Commodity Markets

EU Sues Britain Over ‘Unlawful’ Tax Exemptions for Commodity Markets

The European Commission has filed a lawsuit against Britain for “unlawfully” granting tax exemptions to some commodity markets, a move that is Brussels considers is in breach of European Union rules.

With Brexit just around the corner and the parliament still in a deadlock, the UK is facing what could be the toughest political climate in its history. Now, adding to the ever-increasing pressure is the European Commission, which announced a new lawsuit against the country on January 24.

The European Commission said on Thursday it was suing Britain over the tax exemptions the country granted to some commodity markets, Reuters reported. The Commission considers the waivers to be in direct violation of the European Rules regarding taxation.

Namely, under the European Union law, all member countries need direct authorization from the Union in order to remove sales taxes from products and services. According to the EU Executive Commission, Britain obtained a waiver in 1977, allowing it to charge a zero rate value-added tax (VAT) on some commodity markets. However, the Commission found that the country had “unlawfully” extended the scope of the 1977 waiver to other markets.

The lawsuit against Britain is the European Commission’s last resort, as the legal battle regarding the tax waivers has been ongoing since 2015. Only after the 2016 Referendum did the EU decide to speed up the process and take concrete steps against the UK. In July 2018, Brussels sent a warning letter to the UK requesting that the country impose the commodity market tax. Britain currently charges no value-added tax on derivatives marketplaces in which it is the global leader, such as the London Metal Exchange and the London bullion market.

As Britain largely ignored the warnings, the European Commission decided to step up the legal battle by referring Britain to the EU Court of Justice. The country, however, insists that the waivers are legal and that it will respond to the EU’s lawsuit, but failed to provide any additional details about the legal course it might take.

“This [the legal action] does not have any immediate effect on UK tax law on commodity derivatives. We will respond in due course,” a spokesman for the British government said on Thursday. Former Labour MP George Galloway told RT that the Commission’s decision to sue the UK has been “inextricably bound up with Brexit” and aims to provoke Brexiteers across Britain.

According to reports from Reuters, legal procedures at the EU Court of Justice usually go on for years and have rarely resulted in fines against EU states that refuse to make the required changes. With Brexit just around the corner, the UK might not bother to reinstate the sales taxes to abide by the EU legislation. What does seem like a more likely scenario is Britain paying fines to Brussels after it leaves the EU, a development that could become a precedent for other EU lawsuits.

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