Religion, real property, the EU and State aid: Congregación de Escuelas Pías Provincia Betania

Article IV of the Agreement of 3 January 1979 (“the Agreement”) between the Spanish State and the Holy See concerning financial matters provides that:

“1. The Holy See, the Bishops’ Conference, dioceses, parishes and other territorial units, religious orders and congregations and ‘institutes of consecrated life’ and their provinces and houses shall be entitled to the following exemptions:

(A) …

(B) full and permanent exemption from taxes on property and earnings from property, as regards income and assets.

This exemption shall not apply to income arising from economic activities or from assets belonging to the Church in respect of which use has been assigned to third parties; nor shall it apply to capital gains or to income which is subject to deduction at source of income tax.”

The Congregación de Escuelas Pías Provincia Betania is on the register of religious entities kept by the Spanish Ministry of Justice and the Agreement applies to it. It owns a complex of buildings in Getafe and La Inmaculada school, which is run by the Congregation, is part of that complex [13]. It applied for planning permission to renovate and extend the building used by the school as a hall for, among other things, meetings, courses and conferences with a view to providing seating for 450 persons. Permission was granted in April 2011 and the Congregation paid 23,730 euros in tax on construction, installations and works (Impuesto sobre Construcciones, Instalaciones y Obras: “ICIO”) [14]. It then applied for a refund on the grounds that it was exempt under Article IV(1)(B) of the Agreement but it was refused: the municipal tax office took the view that the exemption did not apply because it had been requested in respect of an activity that had no religious purpose [14 & 15].

In Congregación de Escuelas Pías Provincia Betania [2017] EUECJ C-74/16 the Congregation contended that Article IV(1)(B) of the Agreement had to be interpreted as exempting it from ICIO, irrespective of the intended use of the property forming the basis of assessment for the tax [17]. The Municipality argued that under the Order of 15 October 2009 the exemption from ICIO applied solely to buildings that were intended to be used for the religious purposes of the Roman Catholic Church. Furthermore, absent such a limitation, an exemption could be incompatible with the EU law on State aid – Article 107(1) TFEU – given the scale of the Church’s economic activities such as running schools and hospitals [18].

The EU defines State aid as:

“an advantage in any form whatsoever conferred on a selective basis to undertakings by national public authorities. Therefore, subsidies granted to individuals or general measures open to all enterprises are not covered by this prohibition and do not constitute State aid (examples include general taxation measures or employment legislation)”: further details here.

The referring court noted that, though the question of the compatibility with EU law of the Roman Catholic Church’s exemption from ICIO had never been before the Spanish courts, it had been taken up with the European Commission – which had not adopted a final position on the matter. The referring court explained that, contrary to the Commission’s view, the exemption was not limited to installations, buildings and works belonging to the Church that were used for exclusively religious purposes [19].

The Grand Chamber ruled as follows:

“A tax exemption such as that at issue in the main proceedings, to which a congregation belonging to the Catholic Church is entitled in respect of works on a building intended to be used for activities that do not have a strictly religious purpose, may fall under the prohibition in Article 107(1) TFEU if, and to the extent to which, those activities are economic, a matter which it is for the referring court to determine.”


How the EU law on State aid applies to charities and not-for-profit organisations (which, of course, include the vast majority of religious organisations) is sometimes slightly uncertain. The purpose of Article 107(1) TFEU is to ensure that grant-aid or tax reliefs do not “distort competition by favouring certain undertakings or the production of certain goods … in so far as it affects trade between Member States”; and religious organisations are not – on the whole – involved in trade, whether between member states or otherwise.

But some other charities and not-for-profits certainly are: witness the cutthroat competition among major European universities. It will be interesting to see what the Spanish domestic court decides on the facts – and even more so how the wider issue of State aid and not-for-profits develops within the EU itself.

Cite this article as: Frank Cranmer, "Religion, real property, the EU and State aid: Congregación de Escuelas Pías Provincia Betania" in Law & Religion UK, 3 July 2017,

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