EU orders Italy to recover unpaid property taxes by the Catholic Church

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ROME (Reuters) – The European Commission has ordered the Italian government to recover from the Catholic Church tax arrears on its vast property portfolio, in a move potentially worth hundreds of millions of euros.

The request, which results from a longstanding controversy between Brussels and Rome, could trigger friction between the Vatican and Italy’s new rightist government.

The church properties, which include private clinics, hotels, bed and breakfast accommodation and guest houses, for many years enjoyed tax-exempt status as long as part of it was was occupied by priests or nuns or had a chapel or prayer room – creating an easy tax loophole.

A Treasury document dating from 2011 had estimated a loss of revenue from that arrangement worth around 100 million euros ($106 million) per year.

After a European Commission probe, Italy in 2012 limited the tax exemption to “exclusively non-commercial” structures owned by the Church and other non-profit institutions.

That same year, Brussels ruled that Italy’s tax exemptions for non-commercial entities engaged in social activities between 2006 and 2011 were in breach of EU State aid rules.

Italy would have normally been asked to recover the illegal aid, but the Commission accepted Rome’s argument that its outdated land registry record made it practically impossible.

The EU Court of Justice partly annulled that decision in 2018, forcing the EU executive to issue Friday’s order to go after the money.

The Commission said Italy could do it using data from current real estate tax returns, and complement it with other instruments, including self-declarations.

“The recovery is not required when aid is granted for non-economic activities” or when it constitutes a small aid, the EU executive said in a statement.

Prime Minister Giorgia Meloni, who had a “cordial” meeting with Pope Francis in January, is a staunch conservative and defender of Christian values.

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