An agreement between Spain and the Vatican dating from before Spain’s accession to the EU provides for various tax exemptions for the Roman Catholic Church. In Congregación de Escuelas Pías Provincia Betania v Ayuntamiento de Getafe C-74/16, the Church, relying on that agreement, seeks repayment of municipal tax amounting to €23,000 levied in respect of building work on La Inmaculada school, near Madrid. The building is used predominantly for compulsory education – which is equivalent to the education provided by State schools and the major part of which is financed by public funds – but it is also used for voluntary education, for which the Church charges a fee. The domestic court asked the CJEU for an opinion on the following question:

“Is the exemption of the Catholic Church from the tax on constructions, installations and works contrary to Article 107(1) of the Treaty on the Functioning of the European Union, where the exemption relates to work on buildings intended to be used for economic activities that do not have a strictly religious purpose?” [19].

The domestic court’s question also raises the fundamental issue as to whether the exemption from certain taxes granted by a Member State to a religious community, even in respect of activities that have no strictly religious purpose, constitutes a State aid.

Advocate General Kokott has now issued her Opinion on the reference, concluding that a tax exemption of that kind does not necessarily contravene the prohibition on State aid where it affects a school building used by the Roman Catholic Church for the provision of educational services in the context of its social, cultural and educational mission. It would, however, constitute a State aid if the building concerned were used for genuinely commercial objectives [42 & 43].

The EU Treaties required the EU to respect the status of Churches in the Member States and not to prejudice that status. However, that ddi not mean that the activity of the Churches was excluded from the scope of EU law generally but rather that, in the interpretation and application of EU law, the status of the Church had to be respected and may not be prejudiced [33].

Given that the compulsory education provided was fully integrated into the public education system in Spain and the school was in that respect pursuing its specific social, cultural and educational mission (the pursuit of a strictly religious objective is not required), it had to be assumed that the activity was a non-economic one to that extent [46]. Therefore, EU competition law and the prohibition on State aid were not applicable to that situation.

On the other hand, the voluntary education offered did appear to be commercial in nature, so it had to be assumed that it was an economic activity to which the prohibition on State aid applied. Only where it constituted less than 10 per cent and was, therefore, entirely ancillary might an activity be regarded non-economic [58]. In her view, if there were an economic activity (which was a matter for the Spanish court to determine) and the prohibition on State aid was therefore applicable, then the tax exemption at issue would constitute State aid.

As the Spanish tax on constructions, installations and works in question was introduced only after the accession of Spain to the EU, the tax exemption at issue (for an economic activity) had to be notified to the Commission and could not be granted without the Commission’s authorisation [91-93].

“In any event, it is not for the Court but for the national court to determine the extent of obligations under international law imposed on Spain by the 1979 Agreement.

The referring court will therefore have to examine whether it necessarily follows from Article IV(1)(B) of the 1979 Agreement that the Catholic Church must generally be exempt from the tax on constructions, installations and works in respect of all its buildings in Spain, even those which are devoted, either wholly or in part, to an economic activity. Only then would there be conflict with the prohibition on State aid under Article 107(1) TFEU, and only then would Article 351(1) TFEU allow the referring court to depart from Article 107(1) TFEU in resolving the dispute in the main proceedings” [98-99].

Therefore:

“In the light of the foregoing considerations, I propose that the Court answer the question referred by the Juzgado de lo Contencioso-administrativo No 4 (Court for Contentious Administrative Proceedings No 4), Madrid for a preliminary ruling as follows:

An exemption from the tax on constructions, installations and works to which the Catholic Church is entitled under the Agreement of 3 January 1979 between the Spanish State and the Holy See concerning economic matters does not contravene the prohibition on State aid under Article 107(1) TFEU, where it affects a school building which is used by the Catholic Church, not for the commercial provision of educational services, but for the provision of education services in the context of its social, cultural and educational mission” [102].

It should be noted that an Advocate General’s Opinion is advisory only and does not bind the Court.