Spain to challenge low-tax Gibraltar post-Brexit: report

Vehicles queue at the border of the British Colony of Gibraltar in La Linea de la Concepcion on April 6, 2017

Spain will challenge "unfair competition" from Gibraltar after Brexit, a foreign ministry report seen Wednesday said, singling out a low-tax regime operated by the British overseas territory to attract foreign investors.

As Brexit negotiations begin, EU member states have handed Spain -- which has long wanted Gibraltar back after it was ceded to Britain in 1713 -- the right to veto any future EU relationship with the tiny rocky outcrop after Britain leaves the bloc.

Spain has long criticised Gibraltar's low-tax regime, but the tiny, 32,000-strong territory argues it is a crucial part of its services-based economy.

In the report written for a Spanish parliamentary commission on the EU, the foreign ministry says Gibraltar "has developed its own extremely permissive regime where tax, customs and the establishment of companies are concerned, which in practice has converted it into a tax haven."

As such, it adds, Spain "cannot accept" a post-Brexit deal "that is not completely acceptable for Spain" and will push for an agreement "that prevents an economic situation of unfair competition with the Spanish territory."

In the report, Madrid accuses Gibraltar of benefiting from "unjustified privileges" under its current status within the bloc.

The territory is not part of the so-called EU customs union, which leaves it free to not charge VAT and impose its own low tariffs on goods imported from outside the bloc.

This means some products are cheaper in the overseas territory, attracting visitors.

In addition, to attract foreign investment, it only charges companies that settle there a 10 percent corporate tax -- lower even than Ireland which applies a 12.5 percent rate.

Gibraltar, though, refutes claims it is a tax haven and argues it operates a lawful low-tax regime just like Ireland and Luxembourg, that allows a territory with no industry to survive.

Its chief minister Fabian Picardo rejected the report, saying that the Spanish government's mask was "slipping."

"It is becoming abundantly clear that they want to try to use Brexit to take narrow advantage," he said.

"Gibraltar will, as ever, continue to seek dialogue over Spanish vetoes and will seek cooperation and friendship over Spanish aggression and belligerence."