TY - JOUR
AU - Neffe, Alice
AB - ‘In this world nothing can be said to be certain, except death and taxes’.1 Both, death and taxes are of particular interest for churches and religious communities. Churches’ and religious communities’ tax obligations can be seen as one aspect of the relationship between the state and the church. These relations are shaped differently across the European Union (EU) given the different national, historical, and religious specificities. According to Article 17 of the Treaty on the Functioning of the European Union (TFEU), it is national law that regulates the status of churches and religious associations or communities, while EU law must respect and not prejudice such locally established statuses. In the Grand Chamber decision Congregación de Escuelas Pías Provincia Betania v Ayuntamiento de Getafe (Case C-74/16) 27 June 2017, however, the Court of Justice of the European Union (CJEU) made a decision which appears to contradict this well-established legal framework. By suggesting that a religious congregation could be qualified as an undertaking to which EU competition law applies, and by finding that a tax exemption might constitute unlawful state aid, the CJEU has indicated its intentions to interfere with State–Church relations in EU Member States. 1. FACTUAL BACKGROUND Congregación de Escuelas Pías Provincia Betania (the Congregation), registered with the Spanish Ministry of Justice as an entity of the Catholic Church, owns a building complex in which it carries out three types of activities: (i) religious activities, such as worship, prayer and teaching; (ii) compulsory education subsidized by the Spanish State under the agreement between the Congregation and the Autonomous Community of Madrid; (iii) non-compulsory education (ie early years teaching, extracurricular activities, and post-compulsory education), which are essentially financed by private contributions, including students and parents. The educational activities take place in the school, La Inmaculada, run by the Congregation. In 2011 the Congregation conducted renovation and extension work in the school, by enlarging the seating capacity of a hall used for meetings, courses, and conferences. The Congregation paid EUR 23,730.14 in tax on the construction, installation and works (ICIO). The Congregation applied for a refund of this tax since the Agreement of 3 January 1979, between the Spanish State and the Holy See concerning financial matters (Concordat Agreement), provided for a ‘full and permanent exemption from taxes on property and earnings from property’ of the Church.2 In addition, the Order of 5 June 2001, as amended by the Order of 15 October 2009, clearly stated that: 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 full and permanent exemption from [ICIO] in respect of all buildings which are exempted from the urban property tax (now, the tax on immovable property).3 The Congregation’s request was rejected in 2013. The municipal tax office of Getafe Municipality claimed that the exemption did not apply to activities of the Catholic Church that have no religious purpose. This refusal gave rise to administrative and judicial proceedings at the national level. The Congregation claimed its entitlement to the exemption regardless of the intended use of the property.4 The Municipality, however, argued that ‘the exemption from ICIO applies solely to buildings which, because they are intended to be used for religious purposes of the Catholic Church, are exempted from the tax on immovable property’.5 Moreover, it argued the need for such limitation, ‘given the scale on which the Church carries on economic activities (the running of schools, hospitals etc.)’.6 It is against this background that the fourth Administrative Court in Madrid referred to the CJEU the question of whether: the exemption of the Catholic Church from the Tax on Constructions, Installations and Works in respect of work to buildings intended to be used for economic activities that do not have a strictly religious purpose [is] contrary to Article 107(1) of the Treaty on the Functioning of the European Union.7 Article 107(1) TFEU, which the referring court advances, prohibits states aid that distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods, insofar as it affects trade between Member States. In essence, the question asked of the CJEU was whether EU law prohibits Member States from granting tax exemptions to religious communities for activities with no ‘strictly religious purpose’. 2. THE DECISION OF THE COURT On 27 June 2017, the CJEU, in a preliminary ruling under Article 267 TFEU, decided that tax exemptions afforded to the Catholic Church in Spain may constitute unlawful state aid if and to the extent to which they are granted for economic activities.8 In order to determine whether competition law was applicable to the present case, the CJEU first had to assess whether the Congregation could be considered as an ‘undertaking’ for the purpose of Article 107 TFEU.9 The CJEU started its assessment by invoking its case law according to which the concept of ‘undertakings’ within EU law covers an ‘entity engaged in an economic activity, regardless of its legal status and the way it is financed’.10 Therefore, as stated in the Steymann case:11 [when] the activity in question may be classified as ‘economic’, the fact that it is carried on by a religious community does not preclude the application of the rules of the Treaty, including those governing competition law.12 Therefore, an entity is an undertaking when it carries out economic activities. The CJEU stated that any activity consisting of the offering of goods or services is an ‘economic activity’.13 This was so even if the service was provided on a not-for-profit basis, if the service was normally provided for remuneration.14 However, what would otherwise constitute an economic activity but was ‘integrated into a system of public service and financed, entirely or mainly by public funds’, could not be considered an economic activity within the meaning of article 107(1) TFEU.15 When a single establishment carried out both economic and non-economic activities, it was possible to differentiate between the activities, as long as the establishment kept separate accounts for the different funds that it received.16 In applying these rules, the CJEU considered that if the non-compulsory educational activities held by the Congregation were ‘economic activities’, the Congregation could be qualified as an undertaking, and thus subjected to competition law.17 Therefore, the next step was to determine whether the tax exemption benefits to the Congregation’s economic activities and could be constitutive of a state aid. Accordingly, if the hall at La Inmaculada were used only for educational activities subsidized by the state, the overall activity should be considered as a public service which was ‘not seeking to engage in gainful activity, but is fulfilling [the state’s] social, cultural and educational obligations towards [the] population’.18 On this understanding, Article 107(1) TFEU would not be applicable and the tax exemption would not be considered state aid.19 However, if the hall were used exclusively to provide non-compulsory education financed by private funds, this activity would have an economic nature. Under these circumstances, the financial benefits afforded by the state (the tax exemption) would fall under the prohibition of Article 107(1) TFEU.20 Lastly, if the hall were used for ‘mixed activities’ the tax exemption might fall within the prohibition, insofar as they were activities consisting in the offering of goods or services normally provided for remuneration financed by private funds.21 The final decision as to whether or not the Congregation was an undertaking belonged to the referring court. Nonetheless, the CJEU analysed whether the tax exemption constituted unlawful state aid under the conditions of Article 107(1) TFEU, assuming that the Congregation was an undertaking. Therefore, the CJEU had to determine: (i) whether the tax exemption was an intervention by the Spanish State or through state resources;22 (ii) whether the tax exemption conferred a selective advantage to the Congregation;23 (iii) whether the economic advantage was liable to affect trade between Member States or whether the economic advantage distorted or threatened to distort the competition.24 The CJEU ruled first that the tax exemption could be attributed to the state, thus fulfilling the legal requirement. The Court further held that measures alleviating charges, which would normally be included in the budget of an undertaking, were considered state aid and the ICIO was a tax that was normally payable by all taxpayers carrying out construction or renovation. Thus, the exemption was likely to confer a ‘selective advantage’. Third, the effect of an economic advantage was assessed in abstracto, not by its real effects or its ability to affect the trade and competition. When the aid strengthened the position of an undertaking in a given market, it limited the opportunity for other undertakings to establish themselves in Member States. Therefore, the aid affected trade between Member States. Moreover, aid that diminished the costs normally borne by an undertaking distorted the conditions of competition. In the present case, the CJEU found that: it is possible that the exemption from ICIO for which the Congregation may qualify might make the educational services it provides more attractive by comparison with the services provided by establishments that are also active on the same market.25 However, aid not exceeding a ceiling of EUR 200,000 over any period of three years was deemed not to affect trade between Member States and not to distort or threaten to distort competition.26 It was a matter for the referring court to evaluate whether the amount of the advantages that the Congregation had obtained in respect to its economic activities exceeded this threshold or not. The final aspect under CJEU scrutiny was the qualification of the aid as ‘new aid’ pursuant to Article 108 TFEU, which excludes aid granted by the state prior to its EU accession from the scrutiny of Article 107 TFEU.27 According to the CJEU, despite the existence of a Concordat Agreement dating back to 1979, ICIO was introduced into the Spanish legislation after the Spanish accession to the EU; therefore, the exemption was classed as new aid and fell within the remit of Article 107 TFEU. Finally, the CJEU concluded that: 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.28 3. COMMENTARY While the CJEU ruling in Congregación de Escuelas Pías Provincia Betania v Ayuntamiento de Getafe does not resolve the dispute between the parties because it is a preliminary ruling on a point of law, the direction it takes raises serious questions about whether such an application of EU law (competition law, in particular) properly respects the bounds of State–Church relations. The relevance and implications of this case do not concern only Spain, but all EU Member States: In the light of the frequently very passionate debate concerning the role of religion and religious communities in a modern European society, the present case could not be more topical. The legal questions raised are no doubt of great interest far beyond the borders of Spain to many other Member States as well.29 In the present case, the tax exemption was sought under a valid Concordat Agreement, which clearly provided for a ‘full and permanent exemption from taxes on property and earnings from property’.30 However, in an attempt to avoid assessing the compatibility of an international agreement binding upon a Member State (the Concordat Agreement) with EU law, the CJEU decided to consider churches and religious communities as undertakings. By reasoning outside of the specific case of a Concordat Agreement, the CJEU’s finding has a rather general nature, which means it will apply also to other forms of aid afforded by Member States to churches and religious communities, and not only to Concordats. Consequently, competition law may become a tool for the EU to interfere with State–Church relations as established by Member States.31 To reason that a religious community can perform an economic activity, the CJEU relied on the Steymann case. In Steymann, a member of a religious community applied for a residence permit based on employment in Netherlands. He supported his claim with the fact that he performed plumbing and general household work on his religious community’s premises. His application was turned down and was dismissed on the ground that he was not pursuing an activity as an employed person. Thus, in Steymann, the CJEU might have been affected by the need to ensure the freedom of movement within the EU of an individual, while in Congregación de Escuelas Pías Provincia Betania the aim was to apply EU competition law. In Steymann, the CJEU admitted that ‘it is impossible to rule out a priori the possibility that work carried out by members of the community in question constitutes an economic activity’,32 while in the present case, the CJEU further emphasized the nature of the activity over the nature of the entity which carries it out: insofar as the activity in question may be classified as “economic”, the fact that it is carried on by a religious community does not preclude the application of the rule of the Treaty, including those governing competition law.33 It follows that in the first case the rights of an individual were upheld while in the latter a religious community was deprived of the rights linked to the status afforded by the state within the established State–Church relation. The present CJEU ruling seems to be inconsistent with Steymann also in assessing the volume of the activity required to be considered an ‘economic activity’. In Steymann, the CJEU specified that ‘the work must be genuine and effective and not such as to be regarded as purely marginal and ancillary.’34 However, in the Congregación de Escuelas Pías Provincia Betania, the CJEU maintained that a church may carry out ‘mixed activities’ and thus be deemed an ‘undertaking’. It also held that some of these ‘mixed activities’ may fall under the scrutiny of EU competition law, without however providing a threshold: the prohibition in Article 107(1) TFEU can only apply to the tax exemption at issue in the main proceedings if (i) at least some of the educational activities carried on by the Congregación at ‘La Inmaculada’ school have to be classified as ‘economic activities’ within the meaning of the case-law referred to in paragraphs 44 to 49 of the present judgment and (ii) the hall is used, at least in part, for such economic activities.35 The CJEU creates uncertainty regarding the conditions for qualification of an entity as an undertaking because of its vague references to ‘at least some’ or ‘at least in part’ economic activities. Indeed, if an entity mostly provides non-economic services, yet some of its activities are considered economic activities, it shall be qualified as an undertaking for the applicability of Article 107 TFEU. This might be the case for a church that benefits from some form of financial aid from the state for the maintenance of the building, while also collecting fees for the rental of a hall for marriage celebrations. In this case, the aid from the state might fall under the scrutiny of Article 107 TFEU. This might apply equally to a bookstore operated by a church, or a café on the premises of a monastery. These activities are not a priori the core activities of a religious community. Therefore, it seems difficult to justify that they could affect the qualification of a church or religious community and its privileged status, as afforded by national law. Nevertheless, depending on their scale, activities that are not ‘purely’ religious might contribute to the financial sustainability of a church and even to its wider mission to educate disciples and create a community. In particular, a confessional private school which provides compulsory education, but is not part of the publicly subsidized scheme and is primarily financed by private funds (eg fees paid by parents and pupils), contributes to the call of each church to educate its faithful. Consequently, the qualification of a church or a religious community as an undertaking may have an impact on freedom of religion. If a church is qualified as an undertaking, any form of aid granted directly or indirectly through state resources to a church and attributable to the state may fall under the scrutiny of the CJEU as potentially unlawful state aid. The present case dealt with a general exemption from property tax afforded to the Catholic Church that results in a ‘selective advantage’ benefiting a portion of its non-religious activities. However, across the EU, there are various models by which the state provides financial support to churches beyond tax exemptions, such as the possibility for church to collect a tax (eg in Germany) or the allocations of a small part of income tax to a church instead of the state (eg in Spain or Italy). Sometimes, the state takes also the financial responsibility to maintain church buildings as in France or Belgium. Therefore, even if the CJEU ruling does not concern purely religious activities, which can still be financed or co-financed by the state, the CJEU failed to envisage the impact its decision may have on State–Church relations and state competence. In light of this case and its impact, churches and religious communities may seek to set up their educational and other services as non-commercial entities of public utility (ie foundations or charities) which can also benefit from preferential arrangements regarding their financing, such as income and corporate tax exemptions, tax credits or additional governmental subventions.36 However, it is not clear whether such a manoeuvre will actually be beneficial to churches and religious communities. There are two main reasons why this option should be approached with caution. First, the present case might affect the CJEU’s case law regarding non-commercial entities, thus depriving them of their financial benefits. Second, encouraging churches to carry out their activities as non-commercial entities for financial gain may deprive them from their right to church autonomy, which is essential in the proper functioning of a church. The General Court of the EU has already scrutinized the Italian system of municipal real estate tax exemptions granted to non-commercial entities against EU state aid rules.37 To find that the tax exemption did not constitute unlawful state aid, the General Court ruled that it applied only to activities carried out by non-commercial entities ‘on a non-commercial basis’.38 It further upheld the general and specific conditions for an activity to be classified as being performed on a non-commercial basis as per the Italian legislation: i) the activity, by nature not in competition with other market operators, was carried out by a not-for-profit entity; ii) the non-commercial entity was prohibited by law to distribute any type of profits; iii) in case of an entity providing educational services, the recipient must offer services free of charge or for a symbolic fee which, in any event, must not exceed half the average price for similar activities in the same geographical area, also taking into account the absence of any connection with the actual cost of the service.39 This Italian legislation applied also to ecclesiastical institutions. Therefore, in Congregación de Escuelas Pías Provincia Betania v Ayuntamiento de Getafe, the CJEU has either reversed its jurisprudence regarding tax exemptions afforded to non-commercial entities, or has differentiated between churches or religious communities and other non-commercial entities, such as charitable organizations.40 It would be a mistake to consider churches or religious communities as equivalent to other non-commercial organizations. Churches and religious communities are a specific type of organization and are essential for their members’ exercise of religious freedom. Therefore, they require and benefit from a high degree of internal autonomy, both organizational and functional,41 which does not necessary apply to non-commercial entities, such as charities or public utility foundations. Consequently, churches and religious communities may de facto have to choose between financial subsidies (by organizing themselves as non-commercial entities benefiting from financial arrangements), or their right to autonomy as provided by freedom of religion (by remaining registered as churches). The CJEU did not consider such impact of the case. It did not look into relevant provisions other than the rules on competition, despite relying on well-established jurisprudence allowing the CJEU to provide the national court with ‘all the points of interpretation which may be of assistance in adjudicating on the case pending before it, whether or not that court has referred to them in its questions.’42 Nor did the CJEU respond to the Advocate General’s arguments pursuant to Article 17(1) TFEU, which provides that the EU ‘respects and does not prejudice the status under national law of churches and religious associations or communities in the Member States’.43 Consequently, the CJEU not only interfered with state competence to regulate its relations with churches and religious communities,44 but failed to take account of religious freedom considerations by omitting reference to such norms as Article 10 of the Charter of Fundamental Rights of the European Union (EU Charter) and Article 9 of the European Convention of Human Rights (ECHR). Article 51 of the EU Charter clearly obliges all EU institutions and bodies to take into consideration its provision when implementing EU law. Moreover, Article 52(3) of the EU Charter requires that the rights it contains, if corresponding to rights protected by the ECHR, shall have equivalent meaning and scope as the rights laid down in the ECHR. Derogations are possible only if EU law provides a wider protection. The European Court of Human Rights (ECtHR) is traditionally cautious in scrutinizing the State–Church relationship.45 Rightly, states benefit from a wide margin of appreciation as there is no international law that would impose a uniform model of State–Church relationship, especially concerning the financing of religion. However, when the ECtHR does scrutinize this aspect, it considers the issue as an integral part of freedom of religion.46 Specifically, the ECtHR stated that ‘in certain circumstances issues concerning the operation of religious buildings, including expenses incurred as a result of the taxation status of such buildings, are capable of having an impact on the exercise of the right of members of religious groups to manifest religious belief’.47 Therefore, in Congregación de Escuelas Pías Provincia Betania v Ayuntamiento de Getafe, not only did the CJEU fail to consider freedom of religion, but it also ruled that churches may be qualified as undertakings, thus formulating principles which appear to conflict with this existing jurisprudence on freedom of religion. The final decision in the case of Congregación de Escuelas Pías Provincia Betania v Ayuntamiento de Getafe belongs to the national court. It is likely that the court will apply the CJEU’s reasoning to class the Congregation as an undertaking;48 however, it may decide that the tax exemption does not constitute state aid due to the low amount not exceeding EUR 200,000. Regardless of the outcome in the national court, the CJEU ruling is of fundamental importance since it establishes that a church or religious community may be qualified as an undertaking and, therefore, could be subject to EU competition law. This qualification might have unintended consequences on Member States’ competence to regulate their relationships with churches and religious communities, and generally on freedom of religion. Footnotes 1 Benjamin Franklin, Letter to Jean-Baptiste Leroy, 1789. 2 Case C-74/16 Congregación de Escuelas Pías Provincia Betania v Ayuntamiento de Getafe [2017] ECLI:EU:C:2017:496, 27 June 2017, para 3. 3 ibid, para 10. 4 ibid, para 17. 5 ibid, para 18. 6 ibid. 7 ibid, para 21. 8 Congregación de Escuelas Pías Provincia Betania (n 2). 9 ibid, paras 41–64 (emphasis added). 10 ibid, para 41. 11 C-196/87 Steymann [1988] ECLI:EU:C:1988:475, 5 October 1988. 12 Congregación de Escuelas Pías Provincia Betania, para 43. 13 ibid, para 45 14 ibid, paras 45–47. 15 ibid, para 50. 16 ibid, para 51. 17 ibid, para 59. 18 ibid, para 50. 19 ibid, para 60. 20 ibid, para 61. 21 ibid, para 62. 22 ibid, paras 74–77. 23 ibid, paras 65–73. 24 ibid, paras 78–85. 25 ibid, para 81. 26 Commission Regulation (EC) No 1998/2006 of 15 December 2006, art 2. 27 Congregación de Escuelas Pías Provincia Betania, paras 86–90. 28 ibid, para 90. 29 Case C-74/16 (n 2), Opinion of Advocate General Kokott, 16 February 2017, para 4. 30 Congregación de Escuelas Pías Provincia Betania, para 3. 31 art 17 (1) TFEU, clearly states that ‘the Union respects and does not prejudice the status under national law of churches and religious associations or communities in the Member States’. 32 Steymann (n 11) para 12. 33 Congregación de Escuelas Pías Provincia Betania, para 43 (emphasis added). 34 Steymann (n 11) para 13. 35 Congregación de Escuelas Pías Provincia Betania, para 63 (emphasis added). 36 By way of example, charities in the UK may benefit from government subsidies equal to 25% of the amount of the donation they received. In France, they benefit from a tax credit calculated at 60% of the value of the donation. 37 T-219/13 Pietro Ferracci v European Commission [2016] ECLI:EU:T:2016:485, 15 September 2016 and T-220/13 Scuola Elementare Maria Montessori Srl v European Commission [2016] ECLI:EU:T:2016:484, 15 September 2016. 38 Pietro Ferracci v European Commission, paras 131–50; Scuola Elementare Maria Montessori Srl v European Commission, paras 128–45. 39 Scuola Elementare Maria Montessori Srl v European Commission, para 136; see also for an entity providing accommodation services Pietro Ferracci v European Commission, para 139. 40 La Scuola Elementare Maria Montessori Srl has brought an appeal against the judgment delivered by the General Court on 15 September 2016 in Case T-220/13 Scuola Elementare Maria Montessori v Commission. The decision in the Case C-622/16P is pending and there is a possibility that the CJEU will align its jurisprudence by granting the appeal. 41 Hasan and Chaush v Bulgaria [GC] App no 30985/96 (26 October 2000) para 62; Metropolitan Church of Bessarabia and Others v Moldova App no 45701/99 (13 December 2001) para 118; Holy Synod of the Bulgarian Orthodox Church (Metropolitan Inokentiy) and Others v Bulgaria App nos 412/03 and 35677/04 (22 January 2009) para 103. 42 Congregación de Escuelas Pías Provincia Betania, para 36 (emphasis added). 43 Case C-74/16 (n 29), especially paras 29–33. 44 Naturally, States have to ensure that the chosen model is compatible with freedom of religion. 45 Jean-Pierre Schouppe, La dimension institutionnelle de la liberté de religion dans la jurisprudence de la Cour Européenne des droits de l’homme (Pedone 2015) 339. 46 The ECtHR condemned taxation that ‘threatened sustainability, if not seriously hindered the internal organization, the functioning of the association and its religious activities’ (Association Les Témoins de Jéhovah v France App no 8916/05 (ECtHR, 30 June 2011) para 53). Moreover, in Wasmuth v Germany, the ECtHR turned around its case law balancing individual and institutional aspects of freedom of religion. In this judgment, the right of churches and religious societies to levy church tax prevailed over the right of an individual not to indicate his religious beliefs (Wasmuth v Germany App no 12884/03 (ECtHR, 17 February 2011)). 47 The Church of Jesus Christ of Latter-Day Saints v the United Kingdom App no 7552/09 (ECtHR, 4 March 2014) para 30. Ultimately, however, the ECtHR found that the facts of the case did not support the claim of a violation of art 9 taken alone and in conjunction with art 14 of the ECHR. 48 Congregación de Escuelas Pías Provincia Betania, para 59. © The Author 2017. Published by Oxford University Press. All rights reserved. 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TI - Congregación de Escuelas Pías Provincia Betania v Ayuntamiento de Getafe (Case C-74/16): Tax Exemption for Church Non-religious Activity as Unlawful State Aid
JO - Oxford Journal of Law and Religion
DO - 10.1093/ojlr/rwx064
DA - 2018-02-01
UR - https://www.deepdyve.com/lp/oxford-university-press/congregaci-n-de-escuelas-p-as-provincia-betania-v-ayuntamiento-de-tIA8k7Fetb
SP - 143
EP - 152
VL - 7
IS - 1
DP - DeepDyve
ER -