Church, state and money: How Italy subsidises the Vatican
The Vatican Secretary of State objected to the publication of these groundbreaking articles, but did not dispute their accuracy. Here is the complete series specially translated from La Repubblica, and updates on the court challenge to Italy's subsidies to Church businesses under the European Union competition rules.
The Vatican owns far more of Italy than its walled enclave in the city of Rome. Through its vast holdings which include shipping ports, rental properties, hotels, sporting arenas and other commercial enterprises, it actually owns a fifth of Italy.  Yet this is mostly exempt from Italian property tax. This represents not only a huge subsidy to the Vatican by the taxpayers of Italy, it also gives Vatican-owned businesses an unfair advantage over competitors who pay their taxes. Accordingly, in 2007 the European Commission began — very gingerly — investigating Italy for giving the Church unfair tax breaks.
Three years later — after twice dropping the proceedings against the Vatican — it was announced that the process was going ahead before the European Court of Justice.  (When the European Commission began its investigation in 2007, the Vatican was briefly worried enough to suggest revising the concordat.  However, no more has been heard of that.) Then, in 2012, with the verdict impending, Italian Prime Minister Monti made a move which could allow the Vatican to avoid a Court-imposed penalty. In a letter posted on a government webiste on 15 February 2012 Monti said that by changing the law, and removing some of the church's exemption from the property tax, he expected the EC to relent on demands that tax payments be backdated. 
Even the Italian austerity budget preserved tax exemptions for Church-run businesses. However, after these were found to breach European competition rules, Prime Minister Monti said the Vatican should at least be excused from paying back taxes to his country.
Property tax relief for the Church: EU takes Italy to court
If the Catholic Church places a little shrine in one of its businesses, a cinema, shop, restaurant or hotel, it escapes paying 90% of what it owes to the state for its commercial activities. This is because Italian tax laws exempt anything “not exclusively commercial”, an “intentional loophole” to favour the Church. (Italian original in La Repubblica, 25 June 2007) [This was shelved, but a third attempt was made to launch an investigation in 2010 — see next story.]
Under under intense pressure from both the Italian Government and the Vatican, European Union Commissioner for Competition dropped the matter twice. However the complainants threatened to go before the European Court of Justice and now the process against Italy for giving unfair tax breaks to the Church is going ahead. (Italian original in La Repubblica, 24 September 2010)
Cardinal Camillo Ruini, who heads the Italian Bishops Conference uses the vast sums from the “church tax” to stifle dissent even within Church. When this is combined with all the other tax breaks and outright subsidies, at a “conservative” reckoning the Catholic Church costs the taxpayers of Italy more than the whole overblown state bureaucracy. Yet the Church is neither elected by the people, nor subject to the democratic process. (Italian original in La Repubblica, 28 September 2007)
Since 1992 the Catholic Church has been able to exploit a tax exemption and hostels, colleges and convents into modern hotels. “Churches are emptying while religious hotels are filling up.” The nuns who staff them are paid through the “church tax”, and the profits from these enterprises contribute to the 4 billion Euros, much of which “disappears into a power machine which influences and grooms the economy, politics, democracy and sometimes the exercise of constitutional rights, amongst which is freedom of the press”. (Italian original in La Repubblica, 25 October 2007)
The Italian Constitution (Article 33) prohibits state funding for Catholic private schools, yet this still done. And in the state schools Catholic Religious Education teachers, though are appointed by the bishops, are subsidised by the taxpayers. And if the Church fires an RE teacher for “sins” like being separated, the state must pay the ex-RE teacher until retirement. Grants from the state for Catholic RE amount to almost as much as the “church tax” itself. (Italian original in La Repubblica, 25 October 2007)
The Church has a secret tax fund: this is where a billion Euros disappear to
The majority of Church funding comes from a clever mechanism invented by a Bishop Attilio Nicora who, after a discreet interval, was rewarded with a cardinal's hat. This gives the lion's share to the Catholic Church, even of the taxes of those who didn't specify where their contribution should go. Yet only a small fraction of this is used for charity. (Italian original in La Repubblica, 25 October 2007)
Cardinal Bertone, the Secretary of State for the Holy See (Vatican) has condemned La Repubblica's series: “Let’s put an end to this tale about Church finances”. The newspaper, however, intends to continue its investigation. (Italian original in La Repubblica, 25 October 2007)
With religious tourism growing by 20% a year, the Catholic Church is now offering flights in through ORP, the “Roman Pilgrimage Office”. ORP is based in the Vatican City and therefore “enjoys off-shore tax status, which in practice means that they don't have to submit accounts and can bypass Italian tax, hygiene and safety laws, to name but a few.” (Italian original in La Repubblica, 10 November 2007)
Note: While Italy gives the Vatican travel agency, ORP, tax breaks, Nigeria directly pays it to instruct and bring Nigerians to Rome. Since 2007 Nigeria had been assisting and subsidising its Muslim pilgrims to Mecca and its Christian ones to Jerusalem. Then in 2011 the Vatican managed to get Rome added to the Christian pilgrimage, with an agreement between the Nigerian government and ORP to cement the payments. A priest from ORP says that much of work with the Nigerian pilgrims of various denominations is “evangelisation” ― which is now being funded by their own government. 
The director of the Vatican tourist operation, the “Pilgrimage Office”, claims that public funds and tax breaks are not privileges. He says that Church has rescued the Italian tourist industry from political neglect, and has been “delegated" by the government to take care of immigrants and the poor. And, oh yes, the Church is a victim and must try to protect itself “from those would exploit holy sites and believers merely for financial gain”. (Italian original in La Repubblica, 28 November 2007)
The Italian Church provides service in exchange for state funds. The social welfare system is being dismantled bit by bit and handed over to the Church: rights are being replaced by charity. A very independent social worker priest offers implicit criticism of this development: “In forty years I have learned that a happy society is one with less solidarity and more rights.... The question is about regaining more justice and not offering as charity things which people should have a right to”. (Italian original in La Repubblica, 17 December 2007)
The President of the Vatican Bank admits that it offers secret accounts to many who “have had problems with the law”. There are no cheque books. Everything is done by transfer, by cash or in gold bullion. Untraceable. And, as if the nine-metre thick walls of its tower in the Vatican did not offer enough privacy, it appears to have quietly established itself in the offshore financial centre of the Cayman Islands. (Italian original in La Repubblica, 26 January 2008)
1. “EU appointed Italian gov’t tries to strip Catholic Church’s property tax exemption”, Life Site News, 23 October 2012. http://www.lifesitenews.com/news/eu-appointed-italian-govt-tries-to-strip-catholic-churchs-property-tax-exem
2. “Discounts for the Church ― EU puts Italy on trial” (“Sconto Ici alla Chiesa: la Ue processa l'Italia”), La Repubblica, 24 September 2010. http://www.concordatwatch.eu/kb-37001.843
3. John Hooper, “Church ready to forgo tax breaks”, Guardian, 28 August 2007. http://www.guardian.co.uk/world/2007/aug/28/italy.johnhooper
4. Michael Day, “Vatican told to pay taxes as Italy tackles budget crisis”, Independent, 17 February 2012. http://www.independent.co.uk/news/world/europe/vatican-told-to-pay-taxes-as-italy-tackles-budget-crisis-6988938.html
5. “Another Lesson From Africa: Government-Funded Pilgrimage”, Zenit, 26 April 2012. http://www.zenit.org/article-34676?l=english
“Nigerian Christian pilgrims come to Rome”, Vatican Radio, 26 April 2012. http://www.oecumene.radiovaticana.org/en1/Articolo.asp?c=582951
Note: The Italian "church tax" obliges residents to devote 0.8 % (otto per mille) of their taxes either to the State or to one of the five officially recognized religions. In practice, this means that although only 40 % of Italian taxpayers actually designate the Catholic Church as the recipient of their church tax, the taxes of almost 90% of them wind up in the Church coffers. For more, see the introduction and notes to the 1984 concordat.
About this ground-breaking La Repubblica series
When Cardinal Ratzinger served as doctrinal watchdog, his second-in-command was Cardinal Bertone. Today the Pope still hands difficult problems to his trusted trouble-shooter, who is now Secretary of State. Thus Bertone has recently been assigned to rein in the Fatima renegades who think the Church is involved in a plot to conceal the real message of the Blessed Virgin. The redoubtable Cardinal was also in charge of holding the uxorious Archbishop Milingo of Zambia in a secluded convent south of Rome, far away from both temptations and the press. (The unrepentant Archbishop gave him the slip.*) And now he is assigned to rein in La Repubblica, Italy's largest newspaper, for publishing this series on Church finances. Accordingly Cardinal Bertone issued a peremptory “Let's stop this”.
However, he didn't dispute the figures, but could only object that it's not proper to discuss the financial aspects of things that are “sacrosanct”. This worked in the past, but the days are over when a paper automatically obeyed a cardinal, and La Repubblica has promised to continue its investigative series.
* Philip Pullella, “Vatican defrocks exorcist archbishop who married”, Reuters, 17 December 2009. http://www.reuters.com/article/2009/12/17/us-pope-milingo-idUSTRE5BG24T20091217
“Italy corruption scandal taints the Vatican”, Reuters, 20 June 2010.
“Vatican pledges to help police in cardinal corruption probe”, Irish Independent, 21 June 2010.
For an analysis of what it means when the Vatican Bank begins to be expected to observe normal banking practices, see from the New York Times, “With Bank Inquiry, Vatican Confronts Modern Life”.