LONDON, Feb 5 (Reuters) – Moves by the European Commissionto make Britain charge value-added tax on commodity derivativestrading will include ICE Futures Europe, the London Platinum andPalladium Market (LPPM) and the London Metal Exchange (LME),trading sources say.

The Commission has been looking at zero-rated VAT oncommodity derivatives trading in the UK for some years, butsources say recent activity is part of a drive to pressureBritain ahead of its European Union withdrawal in March.

Last month, the Commission referred Britain to the EuropeanCourt of Justice for extending the scope of measures that allowcommodity derivatives traded on “terminal markets” in the UK tobe zero rated for VAT.

“(The) referral follows the United Kingdom’s failure tobring its legislation into line with EU VAT law following theCommission’s reasoned opinion in July 2018,” the Commission,executive arm of the EU, said on its website.

If Britain leaves the EU without an exit deal, there will beno case to answer. But any deal that keeps the UK subject to EUrules could mean significantly higher costs for Europe’scommodity trading community.

“This is the latest stage in ongoing discussions with theCommission over the UK’s VAT treatment of certain commodityderivatives,” the UK Treasury said.

“This does not have any immediate effect on UK tax law oncommodity derivatives. We will respond in due course.”

The “terminal markets order” (TMO), which allows zero VAT tobe applied to commodity derivatives trading, was agreed in 1973.

“Why hasn’t this come up before? They are trying to kill ourcommodity markets,” a commodity trading source said.

The source added that UK authorities would have made sure”everything was in order” as commodities trading had expandedover the years.

Futures and options contracts for crude oil, natural gas,power, coal, emissions and soft commodities are traded on ICEFutures Europe. ICE declined to comment.

The LPPM is an over-the-counter trading centre for platinumand palladium. It is a members association and not an exchange.

LPPM consultant Anne Dennison said it was monitoring thesituation.

Base metals such as copper, aluminium and zinc are traded onthe LME, one of the 11 original exchanges named in the dealagreed after Britain joined the European Union.

“The LME continues to work with its stakeholders to ensureongoing effective trading on the LME’s market,” the exchangesaid.

Paris-based Euronext applies a standard VAT ratefor financial services on transaction fees for its commodityderivative markets.

(Reporting by Pratima Desai; Additional reporting by ZandiShabalala in London and Gus Trompiz in Paris: editing byVeronica Brown and Dale Hudson)

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