EU Court Revives Religious-Exemption Fight in Italy

(CN) – EU regulators that called out improper tax exemptions granted to religious businesses in Italy should have demanded recovery of the aid as well, the European Court of Justice ruled Tuesday.

A Montessori school in Rome, Scuola Elementare Maria Montessori, and bed-and-breakfast owner Pietro Ferracci in San Cesareo had brought the issue to the attention of the European Commission over a decade ago after Italy amended its municipal tax scheme for real property.

Essentially the government had cracked down on tax exemptions that were in place since 1992 for noncommercial entities that carried out commercial activities on their properties, but ecclesiastical bodies and amateur sports clubs continued to get the exemption.

Though the commission determined in 2012 that the exemption amounted to improper aid, it also found that the recovery of such aid would be impossible so should not even be attempted.

Italy had changed its tax rules again earlier that year meanwhile, and the commission found that the new scheme passed muster.

The Montessori school and Ferracci, on the other hand, continued to protest the impermissible aid. They appealed to the EU’s top court last year after the European General Court dismissed both actions on the merits.

On Tuesday, the Grand Chamber of the Luxembourg-based Court of Justice agreed with the challengers that Italy should have recovered the improper aid.

“A Member State which at that stage of the procedure encounters difficulties in recovering the aid concerned must submit those difficulties to the commission for consideration and cooperate in good faith with the commission with a view to overcoming them, in particular by suggesting alternative methods allowing recovery, if only in part, of the aid,” the ruling states. “In all cases, the commission is required to undertake a detailed examination of the difficulties pleaded and the suggested alternative methods of recovery. Only if the commission finds, following such a detailed examination, that there are no alternative methods allowing even partial recovery of the unlawful aid in question may that recovery be considered to be objectively and absolutely impossible to carry out.”

Here, however, “the commission confined itself … to deducing the absolute impossibility of recovering the unlawful aid in question solely from the fact that it was not possible to obtain the necessary information for recovery of the aid from the Italian land registry and tax databases, while omitting to consider the possible existence of alternative methods allowing recovery, if only in part, of the aid,” according to the ruling.

The court found this decision erroneous and said “the commission should have examined the existence of alternative methods enabling recovery, if only in part, of the aid in question, on the ground that Scuola Elementare Maria Montessori had not been able to demonstrate their existence.”

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