A raft of City firms are being forced to consider postponing their plans for conversion to limited liability partnership (LLP) status after an unfavourable tax ruling by the French authorities.

A group of London firms, including Lovells, Ashurst, Freshfields Bruckhaus Deringer and Linklaters, have been lobbying the French tax authorities in an attempt to make UK LLPs tax transparent. Under the current regime, France does not recognise UK LLPs as tax transparent, thereby deeming profits handed to French partners – which have already been taxed from the UK – subject to local tax as well.

The group had been hopeful of reaching a quick resolution to the issue after hiring premier French tax firm CMS Bureau Francis Lefebvre to negotiate a deal. However, on 30 January, the group was informed that promised legislation to resolve the problem was being delayed until later this year.

Lovells is among those firms being forced to consider delaying its conversion, which had been pencilled in for its year-end on 1 May. The firm's senior partner, John Young, told Legal Week: "We were expecting to get a tax ruling that would make [converting] tax neutral, but I do not think it will happen in time. We are pursuing further enquiries to see if the situation is as bad as we fear, but if it is, we may well be putting our conversion into cold storage until 1 May, 2007."

Linklaters corporate partner and general counsel Raymond Cohen added: "It is possible that we might have to delay our conversion. It depends on whether we can obtain separate clearance from the French authorities and on working out the maximum cost of converting before the legislation is announced."