Britain and Gibraltar count as one EU state in terms of a key aspect of the single market, a senior EU lawyer said, in an opinion that could effect the territory’s life after Brexit.

The lawyer rebuffed a challenge by Gibraltar’s huge electronic gambling industry, the mainstay of its flourishing economy, against new taxes imposed by Britain in 2014.

The industry said the United Kingdom was trying to tax what should be part of the free movement of services, one of the four freedoms of the EU market along with people, goods and capital.

But the advocate general to the European Court of Justice (ECJ), Maciej Szpunar, “takes the view that, for the purposes of the freedom to provide services, Gibraltar and the UK are to be treated as one entity,” the court said in a statement.

Therefore the UK has the right to impose the domestic tax, because it is not covered by EU law which would bar London from introducing a tax impacting on another EU state.

The ECJ is not obliged to follow the advocate general’s rulings when it hands down its final decision but it frequently does.

The gambling case could have wider implications for the Mediterranean outcrop, which has been mulling ways of staying in the crucial single market even as Britain prepares to leave.

The tiny rocky territory on Spain’s southern tip has long been the subject of an acrimonious sovereignty row between London and Madrid, which wants Gibraltar back after it was ceded to Britain in 1713.

Gibraltar, a 6.7-square-kilometre peninsula on the southern tip of Spain, is home to about 33,000 people, with a valuable electronic gambling industry and offshore finance sector that deals with the whole of Europe.

Gibraltarians have looked to London to confirm its commitment, amid fears it will be at the mercy of Madrid without the protection of the EU, which has had to intervene in the past to ease rows between the two over borders and fishing.