Belgium backs down on law firm VAT exemption

Plans by the Belgian government to make all non-Belgian EU law firms VAT-exempt have been temporarily abandoned following a successful lobbying campaign. The ruling would have meant that while the law firms did not have to charge their clients VAT on their services, they would have to absorb any VAT costs on overheads.`The Belgian tax authorities issued an administrative circular, which came into effect on 1 January, deregistering all non-Belgian EC law firms for VAT.`The move was designed to allow non-Belgian EC law firms to compete with Belgian firms, which are VAT-exempt.`However, the VAT exemption means that although the fees can be kept down, overall costs are increased by 21 per cent.`According to Taylor Joynson Garrett’s Brussels office head Jane Golding, who played a leading role in the lobbying campaign, the new administration made non-Belgian EU law firms less competitive.`”Most non-Belgian EU law firms are not competing on the Belgian domestic market. Most are practising EC and competition law and they have to compete with US firms which are not VAT-exempt and therefore don’t pay the extra costs,” said Golding.`The campaign lobbied the Belgian Finance Ministry, the VAT authorities and the European Commission.`The Belgian finance minister responded by saying that the tax administration had made a mistake and the new plans should not go ahead.`Taylor Joynson Garrett’s EC group head Martin Baker says that the change was wrong in principle.`”It was clearly contrary to single-market principles as well as the EC’s harmonised VAT regime. As a result, we took a decision not to deregister and to challenge the circular.”`When the initial harmonising VAT ruling was implemented in 1977, Belgium was granted exemption for a transitional period.`But Belgium is awaiting the implementation of the Lawyers Establishment Directive, which will determine whether EU lawyers will count as Belgian lawyers under Belgian law. If it is decided that they do, there will be a knock-on effect on VAT and the whole issue will need to be reassessed.`Golding said: “The temporary solution is good news but it is not necessarily permanent and we will continue to lobby.”