The first agreement extends some key EU Directives to Gibraltar, and also enables investment services firms established in Gibraltar to passport (that is to market and sell) their products and services into the UK market. The investment services passporting agreement is expected to come into effect by March 2006 when Gibraltar has passed some necessary legislation.

Says the Gibraltar Government: 'The confirmation obtained that the Parent & Subsidiary, Interest & Royalties and Mergers & Acquisition EC directives do apply to Gibraltar companies, and also the agreement that Gibraltar firms can now sell and market their investment services and products into the UK market, will be very positive for our finance centre.”

After the UE's Savings Tax Directive came into force in July, 2005, UK offshore centres such as Jersey and the Isle of Man complained that Gibraltar was escaping the Directive because it is part of the UK mainland in legal terms. The UK and Gibraltar have now agreed on mutual arrangements to implement the STD.

The agreement provides for the exchange of information between the UK and Gibraltar along the lines of the STD as it applies to the Crown Dependencies, namely, that people may choose between exchange of information or the payment of withholding tax. The exchange of information/withholding tax agreement comes into operation on 1st April 2006. There are transitional arrangements which exempt income from existing fixed deposits.

The Chief Minister said: “The banks have been closely consulted during these negotiations. The tax agreement is not challenging to any significant on-going business of the finance centres.

Under the agreement, the UK will report payments to Gibraltar citizens caught by the STD to Gibraltar, while Gibraltar will do the same in reverse, except that recipients can choose to pay a withholding tax of (initially) 15% on payments caught by the STD. Gibraltar will forward 75% of such tax retentions to the UK.