British taxpayers will be lumped with the bill for Brussels’ legal costs from the lengthy trial at the European Court of Justice. The Luxembourg-based court ruled the UK had breached an EU directive by failing to notify eurocrats of a zero-hand of VAT given to commodities traders. The legal action reinforces Boris Johnson’s argument for leaving the post-Brexit transition period when it expires at the end of the year.
Although Britain left the EU on January 31, it remains subject to the bloc’s rules until January 1, 2021.
A Treasury spokesperson said: “We are reviewing the decision of the European court of justice and will provide further details on next steps in due course.
“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.”
The tax row broke out in 2018 when eurocrats claimed the UK had been extending the scope of zero rates for VAT.
UK ordered to pay EU's legal cost after bloc sues Government over tax breaks for traders
Prime Minister Boris Johnson
Tax breaks had initially been given to trade in the future prices of metal, rubber, coffee, sugar, vegetable oil, wool, silver grain, barley and cocoa in the 1970s.
But it was claimed the policy had been extended to cover trades on the London potato market, the International Petroleum Exchange of London, the London meat futures market, the London platinum and palladium market, the London Securities and Derivatives Exchange and the London bullion market.
The Commission said the Government had failed to notify them of the changes.
Government lawyers accused Brussels of simply not understanding a “complex series of restructuring” and said the bloc was being too “formalistic”.
EU Commission President Ursula von der Leyen
The EU claimed the extension to a new range of trades was “not purely formal and were not undertaken simply to take account of the restructuring process”.
They said the changes had allowed “increasingly complex types of instruments, traded on increasingly complex markets” to avoid paying the tax.
The ECJ’s judges, led by Frenchman Jean-Claude Bonichot, backed the Commission.
They said the UK’s failure to notify the Commission was a breach of the EU’s rules.
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The row is over tax breaks given to City of London traders
The court said the judgement wouldn’t cover whether the Commission should give future authorisation to the extension if the UK makes the request.
The ruling came as Brussels launched further legal action against the UK for allegedly breaking the bloc’s free movement rules.
The Commission gave Britain just four months to fix the issues or face a lawsuit with the potential of hefty fines imposed by the ECJ.
Brussels said it had sent the Government a formal letter of notice – the first warning in the infringements process.
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A statement said: “UK national legislation limits the scope of beneficiaries of EU free movement law in the United Kingdom as well as the possibilities for EU citizens and their family members to appeal administrative decisions restricting free movement rights.”
Boris Johnson’s office confirmed that they had received a letter from Brussels and were deciding on what action to take.
The Prime Minister’s spokesman said: “We have received the letter, and we are considering it.”