Belgium withdraws tax circular but threatens comeback

The Belgian government confirmed last week that it is withdrawing a tax circular which required European law firms to deregister for VAT - but there are concerns that it could be reintroduced in the future.Deregistering would have increased firms' costs by 21%, the Belgian VAT rate, and it might have been backdated five years.

The move, which aimed to place EU firms on a level playing field with Belgian practices, was criticised for being against single market principles and inhibiting competition with US law firms with offices in Brussels, which were unaffected by the change (see [2001] Gazette, 17 May, 6).The Law Society organised lobbying on behalf of the 32 UK firms with offices in Brussels.

James Bridge, the Society's Brussels-based acting head of EU and World Trade Organisation affairs, said: 'This is a success for the Law Society and the firms which have been working on the issue.'However, he said there was an 'element of uncertainty' as the Belgian finance ministry will review the VAT situation when the country implements the European lawyers establishment directive, which gives EU lawyers a permanent right of establishment under their home title in other EU states.

Although the directive should have been implemented in March 2000, Belgium, in common with many EU countries (but not the UK), has yet to do so.

It faces legal action from the European Commission as a result.

It is understood the Belgian government has considered the issue but has yet to take any steps towards implementation.'We're keeping a watching brief,' Mr Bridge said, 'but we're pleased for now.'One of the active campaigners against the move, Jane Golding, head of City firm Taylor Joynson Garrett's Brussels office, said the statement was 'very good news, a big step forward'.

But she added: 'This is not an issue that can be forgotten.

It will need further lobbying.'Ms Golding said the circular was a good example of City firms co-operating on an issue of mutual interest.Neil Rose