Madrid wants EU negotiators to revisit the Withdrawal Agreement, which is around 85% settled, and insert a new chapter about the Rock’s future.
It is asking Eurocrats to include tough wording on the smuggling of tobacco, tax evasion and the rights of frontier workers in the text.
However, in return Spain says it will stop pressing its case for sovereignty over the Rock for the rest of the duration of the talks.
The move, coming late in the day when withdrawal negotiations are nearly complete, risked heaping further complications on both sides.
It would mean the Rock’s government being bound by any deal with the EU, overseen by Euro judges, in areas like taxation and environmental legislation.
Tory leader in Brussels and Gibraltar MEP Ashley Fox told The Sun: “I doubt other EU27 countries would tolerate any delay because of Spanish demands.
“Neither side wants to see the Withdrawal Agreement delayed because of discussions over Gibraltar.
“So long as talks continue in goodwill and respect the Rock’s sovereignty we can reach a deal on time that will benefit both Spain and Gibraltar.”
He added: “I’m pleased that Spain is not attempting to discuss the sovereignty of Gibraltar.”
Madrid has long claimed sovereignty over Gibraltar and has tried to use Brexit to push for joint management of its airport.
But according to Spanish newspaper El Pais it is now also pressing other major bones of contention including the Rock’s tax regime.
Spain wants additions to the Withdrawal Agreement, which is legally binding, pledging to curb what it sees as Gibraltar’s unfair competitive advantage.
Among its demands are that the UK Government commits to raise the price of tobacco on the Rock to more closely match Spanish prices and stop smuggling.
Madrid also wants to tighten up tax laws to stop companies registering in Gibraltar for its low rates but operating largely in Spain.
Finally, officials are asking for new wording to give greater guarantees to the 12,000 Spaniards who cross into the Rock every day for work.
A Spanish government official told El Pais: “This is about working toward mutual benefit. We need a more balanced relationship.
“And in future, it is inevitable that Gibraltar will come closer to Spain because that means coming closer to the EU.”
Sources in Madrid added that some progress had been made in a recent round of bilateral talks with the UK.
EU chief negotiator Michel Barnier visited the Spanish capital yesterday to discuss the Gibraltar issue with president Pedro Sanchez.
Afterwards he expressed his “full support” for Spain on the Rock’s future and said the talks “need to conclude ASAP”.
Brussels sources said any agreement would have to be struck bilaterally between the Britain and Spain and that they were “100% behind” Madrid.
They added discussions were still ongoing about how the terms of that deal, in the form of an annex, would be “referenced” in the Withdrawal Agreement.
A senior EU diplomat added: “So far the indications we’ve got from our Spanish colleagues were these are difficult negotiations, but they haven’t said this is really going to hold up the negotiations.”
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