British law firms face a key hearing in the European Court of Justice this week when French officials will demand hundreds of thousands of euros in social security payments from partners based in France.

The case has provoked a fierce row in Paris, where the press is accusing global giants such as Linklaters of tax avoidance. However, senior partners have angrily rejected the accusations and say they are merely implementing a 1968 Franco-British tax treaty.

Under the treaty, partners in British firms, who often earn several hundred thousand pounds a year, pay income tax in Britain even if they themselves live and work in France.

The British tax regime has been relatively favourable to high earners in recent years, although this is no longer the case after a reform in France this year to reduce the top income tax rate to 40 per cent, as in Britain.

The dispute centres on a claim by the French social security head office, Urssaf, that the partners should pay into two separate funds set up to prop up France’s welfare system. This would add a total of 8 per cent to their tax burden.

With Urssaf looking for backdated payments over up to five years, “we are facing a big hit,” said one senior partner.

A spokesman for Linklaters said: “It is worth noting that the French Government has not supported the demand from the social security office.”

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