ECJ rules against UK on extension of zero VAT for commodity trading

LONDON, May 15 (Reuters) - The European Court of Justice has ruled that Britain failed to meet its obligations by extending zero-rate value-added tax to commodity derivatives without seeking permission from Brussels.

The "terminal markets order" (TMO), which allows zero VAT to be applied to commodity derivatives trading, was agreed in 1973 and included the London Metal Exchange.

The European Commission early last year referred Britain to the ECJ, which published its ruling this week.

The Commission argued the measure had been extended "when, in 1981 and 1987 respectively, the International Petroleum Exchange of London and the London Platinum and Palladium Market were added to that list".

ICE Futures and APX Power Markets also received VAT exemptions on commodity derivatives trading at a later time without the UK's seeking authorisation, the EU said.

"We are reviewing the decision of the European Court of Justice, and will provide further details on next steps in due course" a UK Treasury spokesperson said.

"The decision does not require businesses to pay any VAT on historic transactions, and the law applying to derivatives trades today means no VAT is due. That will remain the case while the UK considers next steps in light of the ruling."

If Britain leaves the EU without an exit deal, there will be no case to answer. But any deal that keeps the UK subject to EU rules could mean significantly higher costs for Europe’s commodity derivatives trading community.

The ECJ said Britain had to pay the European Commission's legal costs of the case. (Reporting by Pratima Desai, editing by Larry King)