CC to lobby Germany over tax treatment of UK LLPs

Led by Clifford Chance, the UK's largest firms have banded together to lobby the German government on its adverse tax treatment of UK limited liability partnerships (LLPs)

Should they be successful, this major obstacle to becoming a UK LLP will be removed.

As the law stands, German partners of a UK LLP would pay more tax on their drawings than partners in a US or German firm. UK LLP partnerships are not recognised as transparent, which means they are taxed as a corporate body rather than as a partnership, incurring the higher taxation rate reserved for company dividends.

Clifford Chance currently operates under the umbrella of a US LLP structure. However, a partner at the firm involved with the German lobbying process said: “The UK LLP is a better vehicle for us in Europe. It offers better protection outside the US.”

It is understood that Clifford Chance has consulted and has the backing of most UK firms with a German presence. Clifford Chance will lead the delegation, but it is unclear at this stage what supporting roles the other firms will play.

Linklaters managing partner for Germany Markus Hartung told The Lawyer: “We're not actively lobbying the government ourselves, but we're in discussions with Clifford Chance and are supporting their position.” In common with most UK law firms, Linklaters is reconsidering its partnership structure to take advantage of limited liability.

It is understood that Clifford Chance will try to secure a special ruling from the Ministry of Finance that UK LLPs be treated under the same tax regime as German partnerships. However, one magic circle partner warned: “The new German government is actively looking for additional income sources; its readiness to waive the current rules may be rather limited.”