EU Tells Spain to Stop Tax Exemption for the Catholic Church

The European Union has told Spain it is breaking tax law by exempting the Catholic Church from paying VAT. Spain says a 1979 agreement with the Vatican obliges it to give the church an exemption from value added tax for the goods it buys. But the EU’s executive, the European Commission, said EU rules do not allow such a tax break, and threatened to take Spain to court unless it took action within two months.

However, the EU said Spain would be entitled to charge the VAT and then compensate the church for some or all of the tax that it has to pay to the tax authorities. “That would be a matter for Spain alone,” it said.

The Spanish government has helped to finance the church since 1979 under rules that allow Spanish taxpayers to contribute 0.52% of their income taxes if they choose. Since 1989, however, these contributions have not matched church spending, and the government has made up the difference. In 2003, the pro-church ABC newspaper said the church received €105.9m from tax contributions and €32.8m from the government. Constitutionally, all religious organisations in Spain should enjoy the same benefits. The Catholic Church is the country’s predominant religion and is still very influential.

Britain was forced to comply with the same EU law after Chancellor Gordon Brown announced his intention to levy a lower rate of VAT on repairs to places of worship that were listed buildings. When the EU told him to desist, he circumvented the rule by giving “grants” or rebates to the churches to cover the VAT.