Italy's Tax Breaks for Vatican May Be Illegal, Eu Warns

Monsters and Critics
October 12, 2010

Brussels - Italian tax provisions that allow the Catholic Church to skip paying taxes on its property may run afoul of European Union rules against state aid, the bloc's executive warned Tuesday.

Vatican-owned properties on Italian soil currently are all exempt from the municipal tax on property because they are classified as non-commercial, even in the case of religious hostels or hospitals that actually make a profit.

In a statement, the European Commission said its 'preliminary view is that the relevant provisions could provide a selective advantage to their beneficiaries' commercial activities and therefore constitute (illegal) state aid under EU rules.'

The tax break also covers 'amateur sport clubs,' the commission added.

The EU executive said it would open an 'in-depth investigation' into the matter, which would allow 'interest parties' to air their point of view, and would 'not prejudge the outcome of the procedure.'

But it stressed that, so far, 'Italian authorities have not provided sufficient evidence to enable the commission to consider that the measures at issue could be justified.'

If the commission's suspicions were to be proved, Italy could be asked to recoup money from the Vatican, and eventually face hefty fines from EU courts if it refused to comply.

A separate EU investigation was announced on a 50-per-cent break on corporate tax that Italy has granted since the 1970s to charities, foundations and social housing associations, which is also thought to benefit Vatican-owned enterprises.

But since the concession predates the entry into force of the EU's state aid rules, the commission said it would only be able to ask Italy to amend its tax code, and not to recover money from enterprises which took advantage of the tax break.

In Rome, Italy's minister for EU affairs, Andrea Ronchi, called the commission's move 'surprising,' but expressed confidence that its investigations would find nothing wrong.

Ronchi claimed that the commission had ruled the tax breaks legal in 2008, and expressed confidence that the latest EU probes would only be a 'required step to arrive at the definitive closure of the case.'

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