EU regulators ask Italy to explain tax breaks for Catholic Church property

Brussels, Belgium - The European Commission has asked the Italian government to explain a tax break for Catholic Church clinics or hostels that may break EU rules on state subsidies by giving an unfair advantage over rivals, officials said Tuesday.

In 2005, then Italian Premier Silvio Berlusconi extended a property tax exemption for the Church to cover buildings where it runs businesses such as private health clinics or convents that host pilgrims.

EU regulators said they had received complaints about the tax breaks from people it would not name and had written to Italy to ask for more information on how they work.

"Once a body has economic activities attached to it, then there can be a distortion of competition and it wouldn't be the first time we look at advantages given to the Church in various member states," EU spokesman Jonathan Todd said.

He stressed that the EU executive had not yet decided whether it would open a formal investigation that would decide if the tax concessions were illegal. If they were not justified, then the EU could order Italy to demand the church pay up.

Italy's Ministry for European Policy said it would study the request. A ministry spokesman, Filippo di Robilant, said the Economy Ministry had provided some information to the EU's first request before the summer, but that the EU probably determined it was not enough.

"At this point it's only a request for information," di Robilant said in a statement.

"We don't know if the commission intends to open a formal investigation process on alleged state aid. If the process ends unfavorably, Italy would risk a new infraction right as it has finally managed to reduce the number of other infractions."

The Church's special tax treatment has raised hackles in Italy, blurring into a parallel debate on tax evasion in which Premier Romano Prodi criticized the Church for not doing enough to discourage tax cheats.

This prompted the Vatican's secretary of state, Cardinal Tarcisio Bertone, to say that everyone should do their duty in paying taxes.

But the legal situation on the property tax breaks — originally intended to exempt nonprofit and educational buildings — is still unclear.

Last year, Premier Romano Prodi's center-left government amended the law, saying that only "the activities that are not exclusively commercial" are exempt. The use of the word "exclusively" left a loophole open allowing properties where even minor religious activity goes on to benefit from the break.

This week, Green party leader and deputy economy minister Paolo Cento told reporters that "for the (Church's) economic activities there is a need to end the current form of privilege."

Two years ago, the EU asked Spain to scrap a sales tax exemption that the Church had that cut the final price of goods it purchased.