24 October 2017

Important decision by the Italian Supreme Court on IMU

The Italian Supreme Court of Cassation issued a very important decision which could seriously affect Religious Congregations providing services in return for money (by way of example: hospitality, education and healthcare).

The case concerned a school run by a Religious Congregation which, as for all schools run by religious entities, had not paid the ICI (Municipal Tax on Property, now IMU) with regards to the school property . The Municipality of Livorno requested the Congregation to pay the tax on the property and the Congregation challenged such request before the lower court. The case was finally brought before the Italian Supreme Court of Cassation (which is the Italian Court of last resort). The Supreme Court decided in favor of the Municipality.

The principle established by the Supreme Court is as follows: even though the activities such as hospitality, education and healthcare carried-out by religious entities on a certain property can result in a property tax exemption in respect of that property, in fact the tax-exemption will apply only where it is proven that such activity is not carried-out “in a commercial manner”. The burden of proving this characteristic lies with the entity requesting the exemption.

The Court explained that the following characteristics do not suffice to prove that the relevant activity is performed in a non-commercial manner:

  • it is run by a religious entity;
  • it is not-for-profit;
  • in the best case scenario, the activity would only reach break-even.
  • Indeed, in the Court’s opinion, the mere fact that the services are provided in return for money suffices to define the activity as “commercial”.

The principle established by the Court could have an unprecedented impact on all the activities run by the Religious Congregations for which the latter charge a price, even though such price is fair and so low as to exclude any profit for the religious entity.

Of course, this decision concerns a particular case and is applicable only to that case. This does not mean that automatically all Catholic schools in Italy will be subjected to IMU. There could also be other and contrasting decisions by other sections of the Supreme Court thus giving was to a decision of the United Sections of the Court.

This being said, the precedent established by this Supreme Court decision potentially affects all “commercial” activities of religious institutions, where “commercial” covers any activity where money is exchanged for services, regardless of whether such activity is “for profit” or in fact results in a profit or a loss. From the Court’s decision it emerges that the only activity permitted to a congregation if it wants to benefit from the IMU exemption is a completely charitable activity, viz., where the congregation receives no compensation whatever for its services.

This decision, which is potentially confiscatory of a large part of the Church’s social service activities in Italy, has been harshly criticized by the Italian Bishops’ Conference and by a number of legislators. We can expect activity on this front in the coming months.

However, given that the Court bases its decision in part on an interpretation of European laws and directives concerning rules on unfair competition and state subsidies (areas where Italy has lost in the European Courts in the past), it is difficult to see how new national legislation aimed at nullifying or circumventing the decision can change the brunt of the decision. What we have here is yet another indication of the profound changes in Church-State relations in Italy.


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