Spain's harsh stance over Gibraltar was included in a report drawn up by Spain's foreign minister and revealed by Spanish daily newspaper El Pais on Monday.
The report appeared to outline what Spain sees as non-negotiable terms ahead of Brexit talks including the issue of sovereignty claims over the Rock.
“Spain cannot accept for the EU to negotiate with the United Kingdom a relationship that is not compatible with Spain's position on territorial claims, and that doesn't respect Spanish interests, those of the people of the Campo de Gibraltar [the Spanish territory adjacent to the Rock] and that [doesn't] prevent a situation of unfair competition with Spanish territory.”
The report seemed to contradict the statement made by Spanish Prime Minister Mariano Rajoy at the weekend, one day after European Union leaders met to discuss Brexit.
"There are no red lines or lines of any other colour" on Gibraltar, Rajoy said at a news conference after 27 European Union leaders met without Britain to adopt their negotiating position for Brexit talks.
The EU 27 guidelines have effectively handed Madrid the power of veto over Gibraltar.
They state that "no agreement" after Brexit between the EU and Britain could apply to Gibraltar without a bilateral agreement between Madrid and London.
Britain has expressed alarm over the clause and British Prime Minister Theresa May has insisted she will "never" allow Gibraltar to slip from British control.
According to El Pais, the report states that Spain was forced to accept conditions over Gibraltar when it joined the EU in 1986 but has since found that Gibraltar's statute “has led to a situation of unjustified privilege.”
That although it enjoys EU freedoms such as movement of people, goods, services and capital, it does not form part of the customs union and has its own set of laws outside the jurisdiction of Britain.
“It has developed its own regime which is extremely permissive in relation to tax, customs and business creation, which in practice has turned it into a tax haven,” states the report entitled Negotiations on the withdrawal of the UK from the EU.
However, the report indictated that on matters not related to Gibraltar, Spain was firmly in favour of keeping the status quo as much as possible post-Brexit.
In terms of the rights of Britons resident in Spain (and those Spaniards living in the UK), the report urged a solution that would maintain their existing rights.
“Spain believes the best solution would be to stick as close as possible to the letter or spirit of the current legislation,” says the report,