The top City firms have suffered a major setback in their bid to become limited liability partnerships (LLPs) following the refusal of key European jurisdictions to accept UK tax rules.

Allen & Overy and Freshfields Bruckhaus Deringer have both confirmed to Legal Week they are hoping to become UK LLPs, but have been unable to resolve the issue of foreign authorities taxing LLPs as companies, not as partnerships as is the practice in the UK.