English firms in protest as change to VAT law in Belgium threatens to put up costsVAT exemption: European practices can no longer deduct for purchased goods and servicesThe 32 English practices with offices in Brussels are up in arms after a change to the VAT position of law firms in Belgium which threatens to increase their business costs by more than one-fifth.Under the change, effective from the beginning of 2001, law firms are exempt from VAT if most partners in the firm are registered with a Bar in Belgium or in another EU member state.

Previously, only firms with a majority of partners registered with the Belgian Bar were exempt.The exemption means English firms will no longer be able to claim back the VAT on goods and services they buy, effectively increasing their costs by 21% - the Belgian VAT rate.VAT deducted in respect of investments carried out during the past five years may also have to be repaid, penalising firms which have created or expanded their presence in Brussels during that period.However, the rule does not affect non-European firms.Yves Herinckx, managing partner of Clifford Chance's Brussels office, said the change 'defies all logic', adding that it is not clear whether the circular has been implemented.

'It does not seem to be consistent with Belgian or European law.'He added that the Belgian tax authorities have been vacillating about this issue over the last year and that it is still 'too early' to say whether the circular is definitive.The Law Society's Brussels office has sent an urgent letter of protest on behalf of the firms to Belgian finance minister Philippe Reynders.

Around 150 of the 600 foreign lawyers working in Belgium are English and Welsh solicitors.'The [change] now makes it more expensive for foreign law firms to operate in Belgium,' wrote the Society's head of EU and World Trade Organisation affairs, June O'Keeffe, saying it would be cheaper to serve clients from another EU country.'In addition, [it] will directly benefit our main competitors, namely non-EU lawyers established in Belgium - particularly the US firms - who will continue to benefit from VAT registration.'The Society is to hold a meeting in Brussels for the firms; a parliamentary discussion is scheduled for this week.Neil Rose