Spain's tax office has set up a special group look at the look at the tax operations of companies in Gibraltar.
The department believes that Spanish businesses avoid paying hundreds of millions of euros in tax every year by conducting translations via Gibraltar, reported Spain's El País newspaper on Monday.
In Spain, company tax is charged at 30 percent, but in Gibraltar, this figure is just 10 percent.
There are no official figures for tax evasion, but some 30,000 companies are 'based' in the tiny UK territory, said the daily.
The new government working group will investigate the creation of firms in Gibraltar as well as the movement of capital between Spain and the territory.
This group also plans to scrutinize how Spanish companies go about making 'opaque' their assets so that they don't have to pay tax in Spain.
"Gibraltar is no longer a fiscal paradise," Fabian Picardo, Gibraltar's Chief Minister, told El País recently.
"That is an old-fashioned model and has no place in a modern Europe, or in the modern world," said Picardo.
But Picardo acknowledged that governments needed to be aware of the actions taken by SiCAVs, or investment schemes, being run out of countries such as Spain.