Solicitors consider Allen & Overy plan to end impasse over VAT billing in Belgium

Row: English firms hit back over latest twist in plans to exempt them from charging VAT

UK firms in Brussels are squaring up for the latest round in the ongoing fight over the payment of VAT for legal services in Belgium.

It was announced last month that - after Belgium's delayed implementation of the lawyers' rights of establishment directive - the country is seeking to bring foreign law firms practising there within the VAT regime, which exempts lawyers from charging VAT.

If they became exempt from VAT, European firms would no longer be able to claim back the VAT on goods and services that 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 need to be repaid.

The 150 English and Welsh solicitors working in Brussels were this week considering whether to endorse letters of complaint - drafted by Allen & Overy's Belgium managing partner, Wim Dejonghe - and back official lobbying by the Law Society to change the Belgium government's mind.

Mr Dejonghe's draft letter sets out two alternatives for the Belgian tax regime for lawyers.

The first envisages charging VAT on all non-court-based legal services.

This is because the original exemption of legal services from VAT was implemented in Belgium to protect individuals with legal claims from paying VAT.

The second alternative envisages a two-tier system, in which foreign firms established in Belgium continue to charge VAT, while their Belgian counterparts remain exempt.

Mr Dejonghe said he favoured the first option, because it would put firms on an even footing.

He added: 'If foreign firms are exempt it will be discriminatory both on non-VAT exempt clients, whose bills will be 21% higher for work done at foreign firms, and on law firms themselves, which would be less capable of attracting government contracts and other lucrative deals from VAT-exempt bodies.'

The Law Society's Brussels office is currently gauging opinion among English firms, with a view to drawing on one of Mr Dejonghe's alternatives in an official letter of complaint.

Jeremy Fleming