LUXEMBOURG (CN) – The European Court of Justice dealt a blow Tuesday to a bid by a Spanish parochial school for a refund on $27,000 worth of municipal construction taxes.
La Inmaculada, a Catholic school in the Southern region of Madrid called Getafe, claimed it was entitled to a tax refund under a 1979 agreement between Spain and the Holy See.
In denying the school’s claim, however, municipal tax authorities focused on the fact that the activities conducted at the hall La Inmaculada renovated are not purely religious.
The school uses the hall for state-regulated primary and secondary education, for which it receives public funding, as well as other noncompulsory education, including preschool and extra-curricular activities.
Seeking guidance on the ensuing action by the congregation of Piarist religious schools in Getafe, an administrative court in Madrid punted the case to the European Court of Justice.
Tuesday’s ruling says that the tax exemption would indeed constitute state aid if La Inmaculada uses the premises at issue for “economic activities,” which the court defines as educational activities that are not subsidized by Spain.
It is up to the court in Madrid nevertheless to determine the extent to which La Inmaculada’s activities are economic.
“If the hall were used solely for educational activities subsidised by the Spanish State and meeting all the criteria set out in paragraph 50 of the present judgment, the tax exemption at issue in the main proceedings would not fall under the prohibition in Article 107(1) TFEU,” the ruling states.
“If, on the other hand, the school hall were used exclusively for the educational activities provided by the congregación without financial support from the Spanish State and meeting the criteria set out in paragraphs 44 to 49 of the present judgment, the exemption at issue in the main proceedings might well fall under that prohibition.”
Another section of the ruling cites a likelihood that giving La Inmaculada a tax exemption amounts to a selective economic advantage and is likely to reduce revenue for the municipal council.
The ruling concludes with a rejection of Spain’s argument that such an exemption would constitute existing aid, rather than new, since the Holy See agreement predates Spain’s 1986 ascension to the the European Union.
Disagreeing, the court said “the fact remains that ICIO [the municipal construction tax] was introduced into Spanish legislation only after that accession and the tax exemption at issue in the main proceedings came into being as a result of the order of 5 June 2001.”