Law Firms

Australian Tax Law Threatens Full Merger of Norton Rose, Deacons

Norton Rose partners voted this week to merge with Australia’s Deacons, a move that would dramatically extend the reach of the London-based firm. But the deal faces a significant hurdle that could prevent the full financial integration of the firms.

Norton Rose chief executive Peter Martyr told the Australian that the most serious hurdle would be the switch by Deacons to a limited liability corporation.

A partial merger is expected to take effect in January as planned. Then a combined Deacons and Norton Rose would be comprised of 1,800 fee earners in 29 offices. Some 650 of the firm’s lawyers will be based in Australia and Asia.

But a full financial integration won’t be possible unless Deacons incorporates as a legal practice, a move that would expose the firm to capital gains tax under Australian law.

Critics tell the publication that imposing capital gains on law firms that incorporate is ludicrous because the incorporation isn’t an income-producing event.

Martyr drew this analogy to explain the decision to move forward: “We are getting married. We will have separate accounts for the moment and we will work towards having a joint account.”

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