Tax lawyers are no longer on the sidelines. In June the Organisation for Economic Cooperation and Development announced it was considering forcing multinationals to reveal how much tax they pay in each jurisdiction.
Freshfields was already ahead of the curve. Just a week later it made a senior hire in the shape of economist and transfer pricing expert Danny Beeton from Grant Thornton. The move slipped under the radar rather, but it did set off reverberations among the top City firms. Transfer pricing - payments from one part of a multinational company for goods or services provided by another - is at the heart of the political debate over shifting tax liabilities offshore. Critics say multinationals move billions from country to country through tax havens to avoid the bills and that there is not enough transparency in the process.
Enter the magic circle firms, which have spied an enormous opportunity to create a high-value offering for corporates. Lawyers are used to working with different disciplines for bet-the-company advice; take competition lawyers, who already team up regularly with economists. But the top City firms won’t be working in alliance with other professionals - they want to take the work in-house.
It’s a canny impulse. After all, tax law is a practice untarnished by commoditisation and where the highest possible partner rates can be justified.
Tax partners have long been among the top-charging lawyers in the City, and they have the added advantage of having low leverage and therefore a low cost base. But there is another factor behind the urge to provide a creative product free of any trace of the assembly line: the sheer intellectual challenge. With the structured finance market tanking there’s been a vacancy for rocket scientists. It is, if you like, the revenge of the nerds.
Allen & Overy and Linklaters are fascinated by and entirely envious of Freshfields’ swift move, although the smart money is on Camerons being the next to hire a transfer pricing expert, as its search is considerably more advanced.
For all four firms, the timing is right. HM Revenue & Customs is becoming increasingly aggressive, and corporates are edgy. Sometimes the fear factor can be a lawyer’s best friend.