The Isle of Man Treasury and life offices claim the offshore industry has been stung by a UK Inland Revenue decision to grant a Luxemburg-based life office exemption from tax reporting rules.
Fiscal representation rules, designed to provide a structure for the reporting of taxable life office transactions, will cause an extra burden of administration costs on offshore offices, say the island's top officials.
But the Revenue has awarded individual exemptions to Luxemburg-based life offices, among them Scottish Equitable International.
The UK Government and offshore life industry have been involved in prolonged negotiations aimed at setting up UK-based fiscal representation for each offshore jurisdiction.
The Isle of Man and Channel Islands have agreed to report to the Revenue about taxable life office transactions.
Scottish Equitable International sought individual exemption from the rules due to Luxemburg's confidentiality laws.
Failure to grant the exemption would have left it in legal limbo, required by UK law to reveal information but prohibited from doing so by Luxemburg law.
The Isle of Man Treasury's chief financial officer John Cashen has blasted the decision saying it will handicap the island's own life assurance industry.
And Isle of Man-based Scottish Life International has demanded a level playing field.
A Revenue spokeswoman says: "We have taken legal advice over the type of information needed and found that it would constitute an illegal act in Luxemburg.
Cashen says: "I think there is not a level playing field. Preference is given to those within the European Union compared to those outside."
SLI technical marketing manager Fiona Middlemiss says: "We think everybody should be treated the same way."