European Court Rules Against UK on VAT Treatment of Futures Trading

Charles Riordan
June 4, 2020

In the midst of ongoing negotiations following the UK’s exit from the European Union (EU), the Court of Justice of the European Union (CJEU) has ruled that the UK has impermissibly expanded the scope of its 0% VAT rate on futures trading.  And, that this has been occurring over a period spanning more than forty years. While this ruling doesn’t overturn current UK policy – as affirmed in a subsequent statement from HMRC – it does require the UK to seek authorization from the European Commission to continue applying it. How and when the UK will comply with the judgment, and what the Commission’s response will be, adds to the current uncertainty for businesses operating in the UK.

Case C-276/19, European Commission v United Kingdom of Great Britain and Northern Ireland, stems from breach proceedings brought by the European Commission in March of 2018. But the roots of the dispute arose decades ago. In 1977, the UK told the Commission that it intended to maintain zero-rating for eleven “terminal markets”, on the basis that the futures trading conducted were not transactions in goods, but instead “of the nature of financing or insurance.” Following that notification, zero-rating was expanded beyond the original eleven markets (later additions included trades in gas and electricity, for example). The CJEU found the UK’s justification for the additions – that they were in response to a restructuring in the London commodity markets – unconvincing, given that some of the changes involved newly existing transactions such as trading in carbon emissions allowances.

The political implications

The political implications of the CJEU’s judgment are unclear, but what is known is that the UK must:

  1. Pay the Commission’s legal costs, and
  2. Seek authorization to continue applying the zero-rate to any transactions added to the UK legislation since 1977.

The CJEU did note that nothing in its judgment addressed the question of whether the Commission should grant authorization. Meanwhile, HMRC has stated it will be reviewing the decision and that the current rules apply for the time being.

The ruling is likely to increase tensions between the UK and the EU in the run up to the end of the Brexit transition period on 31 December 2020. Whether both sides can reach an ongoing trade agreement to include a resolution of this issue remains to be seen. Affected businesses should watch HMRC announcements for updates.  

Take Action

To find out more about what we believe the future holds, download Trends: Continuous Global VAT Compliance and follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and other updates.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.


Charles Riordan

Charles Riordan is a member of the Regulatory Analysis team at Sovos specializing in international taxation, with a focus on Value Added Tax systems in the European Union. Charles received his J.D. from Boston College Law School in 2013 and is an active member of the Massachusetts Bar.
Share This Post

LATAM VAT & Fiscal Reporting
May 20, 2020
Sovos Acquires Taxweb, Extends Tax Determination Capabilities in World’s Most Challenging Compliance Landscape

Earlier this month Sovos announced its second acquisition of 2020, completing our solution for Brazil with an unparalleled offering that solves tax compliance in the place where it is most challenging to do so.  Too many companies doing business in Brazil have been burdened by managing multiple point solutions for continuous transaction controls (CTCs), tax […]

E-Invoicing Compliance EMEA Tax Compliance VAT & Fiscal Reporting
July 8, 2020
Turkey: Penalties for Noncompliance with the Mandatory Electronic Document Framework

For rules to carry any real weight, the rule-maker must combine compliance with that rule with either a carrot or a stick. In the field of tax legislation, the rule-maker, in this case, the legislator or the tax authority, almost always goes down the route of the stick in situations of noncompliance. And the penalties […]

ShipCompliant United States
July 2, 2020
Direct Wine Shippers Have a New Tax Burden in Chicago

As of July 1, 2020, wineries making direct-to-consumer (DtC) shipments of wine into the city of Chicago will face an additional tax burden. Under Chicago ordinance O2020-801, the city’s Liquor Tax will now apply to all sales of alcohol to consumers in the city.  What Is The Chicago Liquor Tax? Chicago has long imposed an […]

Tax Compliance Tax Information Reporting United States
July 2, 2020
New Educational Course: Tax Compliance and Accounting for Captive Insurers

Finding relevant insurance accounting education has always been a challenge for insurance professionals. Insurance is a global industry. But, the financial reporting and tax rules for insurance transactions represent only a small niche within the extensive realm of statutory and GAAP guidance.  Captive insurance companies are yet another niche within that, which only narrows the […]

Sales & Use Tax United States
July 1, 2020
New Rules for Remote Sellers in Louisiana

Beginning July 1, remote sellers making sales into Louisiana must register with the Louisiana Sales and Use Tax Commission for Remote Sellers (“the Commission”) in order to be compliant with new requirements to collect, remit and report state and local sales tax. The information below is intended to explain what companies will be impacted, what […]

Sales & Use Tax United States
July 1, 2020
Back to Basics: Seven Things You Need to Know About CSPs & SST

Sales & Use Tax is complex and growing more so by the day. The number of jurisdictions, tax forms and rate changes makes managing these processes enough to deplete the resources of even the most experienced accounting and finance teams.  States have been working to alleviate the burden on companies by providing programs that allow […]