The perks were introduced under Royal Prerogative in the late 1940s, and were then incorporated in the Visiting Forces Act 1952.
But Customs and Excise has recently discovered that two Brussels directives restrict relief from value-added tax and excise duties to Nato forces only, and that the Government has been acting illegally for at least nine years.
Faced with the problem of how to "regularise the legal position of the United Kingdom in relation to EC law", the Treasury asked the European Commission for an exemption - or "derogation" - for the Commonwealth forces, "to enable the United Kingdom to continue affording reliefs to non-Nato Commonwealth forces from taxes and duties".
Philip Oppenheim, Exchequer Secretary to the Treasury, said earlier this month that the UK is considering how best to work towards a compromise.
But it would appear that he has little chance of success - and Commonwealth forces are facing a bill estimated at up to pounds 1m in duty on their alcoholic drink, tobacco, and fuel bills, as well as VAT on all purchases.
Mr Oppenheim told MPs: "The Brussels Commission has recommended that the Council [of economic and finance ministers] reject the UK application for a derogation ...
"The commission asserts that such a derogation would not be restricted to one member state but would apply throughout the community and would entail a change in relevant directives.
"In the commission's opinion, the procedure must be applied with constraint."
But as the final decision requires unanimity, taking only one minister to vote against, it is unlikely the Commonwealth troops will retain their perk.Reuse content