A VIEW FROM BUDAPEST

The big news in Hungary at the moment is the group of tax lawyers that have moved from PricewaterhouseCoopers to Clifford Chance. Of course, Linklaters started the trend by including a tax department when its office opened in January. These moves have sparked expectations and speculation that other major law firms might do the same thing and bring in a tax arm.

This is in part a reaction to the big five accountants looking in the other direction – offering legal advice.

Law firms providing tax advice is a new development in Hungary. Until recently, only the accountants gave international tax advice. While clients approached law firms with simpler questions, the global arena was closed to them on tax.

For the Hungarian firms, getting into the work is difficult because they need lawyers with strong economic backgrounds. Hungarian tax law is quite sophisticated and cross-border deals need experience. But law firms may have a competitive edge in providing a combined legal and tax service to their clients. We are now seeing a lot of tax-based transactions, due to Hungary’s very favourable double taxation network and off-shore facilities.

But dealing with such transactions demands more than just an open-minded approach – it needs a network of international offices.

Encouragingly for the domestic legal market, in 2000, the balance between expat lawyers and Hungarian lawyers within large firms is much more healthy than it was six to eight years ago. Now when we advise blue-chip companies and advise on privatisations, the deals are increasingly being done in Hungarian. Previously, most documents in international transactions were written in English and if a Hungarian translation was done it would sometimes be awkward Hungarian, translated as an afterthought. We have now reached a healthy ratio.

A senior Hungarian lawyer working within a foreign firm is now able to charge as much as their English colleagues within the same firm, which has not always been the case. Around seven years ago in the large law firms, an expat partner would charge between five and eight times the rate of a Hungarian lawyer.

But when it comes to the national firms, they are still not doing the big deals. Big debt facilities, cross-border M&A and international project finance are all still mainly done by the UK and US firms.

However, more Hungarian firms are attempting to get involved in international work and the market is now more competitive even on the medium-sized deals where there is always competition for the mandate, certainly from the large Hungarian firms.

As with everywhere else, Hungary’s recruitment market is under a lot of pressure. In five years, the number of law graduates coming out of law school has increased almost 10 times. And there are still not enough to go round, especially good quality trainees for the big international firms.

On the plus side though, most newcomers have a commercial approach which was very difficult to find 10 years ago. But for most dynamic, motivated law students the goal is to work for an international law firm, which once again puts Hungarian firms at a disadvantage. Many cannot afford to pay their trainees, and they justify this stance by pointing out that, just as doctors are underpaid during their training, the trainees are investing in their future.

As for Hungary’s future, we all hope that the trend toward globalisation will continue and that Budapest will become a Central and Eastern European hub for the multinationals, as has so often been suggested.

Balázs Máthé is head of corporate at Berecz & Andrékó Linklaters in Budapest.