Italy's Catholic Church flexible on property tax

December 10, 2011 - 5:45 PM

ROME (AP) — Italy's Catholic Church has shifted gears and shown a willingness to revisit its tax-exempt status amid renewed criticism that much of its vast real estate holdings isn't subject to local property taxes.

The criticism has grown recently following Premier Mario Monti's proposal to restore a property tax on first and second homes as part of his sweeping austerity measures to help reign in Italy's massive debt.

With ordinary Italians being asked to make sacrifices, the church is coming under fire to do its part and give up what some consider an unfair privilege. Critics, most prominently Italy's Radical Party, charge that the Italian government is missing out on millions of euros in potential taxes.

Cardinal Angelo Bagnasco, the head of the Italian bishops' conference, said Friday the church would be open to looking at the issue and remedying any individual "abuses" that might have occurred.

"The current norms are correct in that they recognize the social value of activities carried out by many non-profits, among them church ones," he said. "It's also correct that if there have been concrete cases in which a tax that should have been paid wasn't, we should verify the abuse and end it."

The church has long insisted that it enjoys no special tax privileges, noting that nonprofit organizations, cultural associations, foreign embassies, Lutheran-owned churches and the synagogues of the Jewish community, are exempt from local property taxes.

But in 2006, Parliament extended a property tax exemption to cover buildings that weren't "exclusively" commercial, such as private health clinics or convents that host pilgrims.

That created a gray area where church-owned properties could conceivably carry out some commercial activities and still retain their tax-exempt status.

Italy's Radical Party, which is vehemently anti-church, complained to the European Union, charging that the exemptions gave the church an unfair economic advantage over rivals.

The Radicals have exposed how some in the church have taken advantage the wiggle room by using tax-exempt residences for priests as unofficial — and profitable — bed and breakfasts.

The European Commission placed Italy under investigation last year, saying it believed the exemptions could violate EU rules on state subsidies and could distort competition.

If the commission rules against Italy, the EU could order Italy to demand that the church reimburse the government for the unpaid taxes.

Twice in the past week, Monti has been asked if his government will reconsider the tax-exempt status of the church in future austerity measures. He has said the Cabinet hasn't yet discussed the issue, though on Friday he noted that matter was still before the EU.

Bagnasco's willingness to even consider looking at the exemptions granted by the 2006 norms marks a turnabout given the church's previous defensiveness on the issue, which it has dismissed as pure anti-church propaganda from the Radicals.

Just this week, the newspaper of the Italian bishops' conference lashed out at the Radicals' attempt to "create confusion" with claims of millions of euros of the church's unpaid taxes.

But amid Italy's precarious financial state, even the Vatican's No. 2, Cardinal Tarcisio Bertone, struck a flexible this past week saying the question of the property tax should be "studied."

The issue is particularly sensitive in Italy since Italians have enjoyed paying no property taxes on their homes since then-Premier Silvio Berlusconi made good on his 2008 campaign promise to abolish them. Monti has said the property tax must be restored to bring Italy in line with norms of other EU countries.

One of Monti's Cabinet ministers, Andrea Riccardi, is one of the most prominent lay Catholics in Italy, the founder of the Sant'Egidio Community with close ties to the Vatican.

He said this week that the church should pay the property tax if commercial activity is being carried out on the property. "I think that all the all the religious and cultural activities of the church are a richness for the country and the tax shouldn't be paid," he told RAI state television.

But if individual cases are discovered where commercial activity is being carried out, "necessary measures should be taken."