(adds UK reaction)BRUSSELS, Jan 24 (Reuters) - The European Commission said onThursday it was suing Britain over tax exemptions the countrygrants to some commodity markets, waivers that Brusselsconsiders in breach of European Union rules.Under EU rules, countries need EU authorisation not tocharge sales tax on products and services. In 1977, Britainobtained a waiver to charge a zero rate value-added tax (VAT) onsome commodity markets, but has since unlawfully extended itsscope to other markets, the EU executive Commission said.
Last July, Brussels sent a warning letter to Britain overthe case. On Thursday, it stepped up the legal battle byreferring Britain to the EU Court of Justice. The procedurecould end up in fines if the court rules against the UK.Britain charges no VAT on derivatives marketplaces in whichit is the global leader, such as the London Metal Exchange andthe London bullion market.
The Commission is requesting that Britain impose the tax. Itsaid the waiver "generates major distortions of competition tothe detriment of other financial markets within the EU".The legal battle has been going on since 2015, but theCommission stepped it up after Britain decided to leave the EU.Britain has said the waivers are legal."This [the legal action] does not have any immediate effecton UK tax law on commodity derivatives. We will respond in duecourse," a spokesman for the British government said onThursday.EU legal procedures usually last years and only in rarecases have ended up in fines against EU states that refuse tomake the required changes.As Britain is leaving the EU, it is unclear whether thecountry would change its rules to abide by EU tax legislation.It is also unclear whether it would agree to pay possible finesto Brussels after it quits the union. (Reporting by Francesco Guarascio; Editing by Dale Hudson,Robin Emmott and Alexandra Hudson)
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