EU investigates Italy for church tax breaks

ROME (AP) — The European Commission has placed Italy under investigation for granting tax breaks to the Catholic Church for church-run clinics and hostels amid complaints the exemptions give the church an unfair economic advantage over rivals.

While stressing that it was not prejudging the outcome of the investigation, the commission said Tuesday it believed the tax exemptions could violate EU rules on state subsidies and could distort competition.

The Italian government has a month to respond before the commission makes a final decision. The Foreign Ministry said in a statement that "the government is convinced that it can demonstrate to the commission in a clear and conclusive way the good and sound reasons" behind the exemptions.

However, if the commission rules against Italy, the EU could order Italy to demand that the church reimburse the government.

The EU didn't specify whether the tax breaks were for the Italian Catholic Church or the Vatican, which has extensive real estate holdings in Rome.

In 2005, Italian Premier Silvio Berlusconi extended a property tax exemption for the church to cover buildings where it runs businesses such as private health clinics or convents that host pilgrims.

Unnamed rivals complained in 2006, prompting EU regulators to ask Italy for more information on how the businesses worked. On Tuesday, the EU launched a formal investigation.

Italy's minister for European policy, Andrea Ronchi, said the decision was "surprising" but that he expected Italy would be cleared. He said he believed the investigation was merely a "required step to arrive at the definitive closure of the case."

In a statement, the commission said among other things the investigation would verify whether the tax exemptions could be considered as services of general economic interest.

Under EU state aid rules, public service providers such as mail, transport and telecommunications companies can receive compensation from the government for their extra costs under certain conditions.

The commission said Tuesday that Italy hadn't provided sufficient information to establish that was the case for church institutions.