We address in this news a delicate issue, the application of the Municipal Property Tax (IMU) on real estate owned by ecclesiastical entities.

The Supreme Court of Cassation, the highest Italian judicial authority in civil and criminal matters, has recently issued a ruling that has clarified some controversial aspects of this matter, outlining a rather complex and constantly evolving picture.

What does the Supreme Court of Cassation say about the payment of IMU on ecclesiastical properties

The Order of the Supreme Court of Cassation, Civil Division, Tax Section No. 17679 of 26/06/2024 has provided interesting clarifications on the treatment of IMU for certain real estate used by ecclesiastical entities.

The issue addressed concerns the applicability of the exemption from IMU provided by letter g) of paragraph 759 of article 1 of law 160/2019, in favour of real estate owned and directly used by non-commercial entities (article 73, paragraph 1, letter c), of the TUIR) for the carrying out of a series of facilitated activities (educational, recreational, sports, cultural, etc.), in a non-commercial manner.

The exemption also extends to properties used for carrying out activities provided for in article 16, letter a, of Law 20 May 1985, no. 222, which states: “For the purposes of civil law, the following shall be considered in any case: a) activities of religion or worship directed to the exercise of worship and the care of souls, the training of clergy and religious, missionary purposes, catechesis, Christian education…”.

One of the requirements set out by the law is, therefore, that the activity is carried out in a non-commercial manner, that is, free of charge or with symbolic compensation that represents partial coverage of costs (compensation which, according to Ministerial Decree 200/2012, must in many cases be less than half of the average market value for the relevant activities).

According to the Court, religious and worship activities do not have a commercial nature per se, as the pursuit of a speculative or lucrative purpose must be excluded in and of itself. This is because it is not logically conceivable to carry out a religious or worship activity in a commercial manner.

In addition to the above provision, there is the exemption provided for by letter d) of the same paragraph 759, in favour of buildings exclusively used for the exercise of worship, compatible with the provisions of articles 8 and 19 of the Constitution and their appurtenances.

The controversy addressed by the Court concerns a series of properties owned by a religious entity and their subjection to IMU. The Court specifies that accessories of buildings used for worship, in addition to the oratory, also include premises used for catechesis, meetings, and non-commercial parish initiatives, as well as dwellings for clergy assigned to the church (i.e., the parish), those of sacristans hired under an appropriate contract, and the dwellings of religious women operating under an agreement within the parish pastoral care.

The exemption also extends to the parish priest’s house, the homes of collaborators, and properties given on loan to other non-commercial entities

The parsonage (the priest’s residence) is also considered an accessory of the place of worship. A house located near the church, intended for the residence of the parish priest assigned to that church, is an appurtenance thereof, unless there is proof to the contrary which must be provided by the tax authority. For this purpose, it is irrelevant whether the parish priest is registered as a resident in another municipality or does not, temporarily, reside in that house, since the accessory is linked to the property and not to the persons who happen to work in those buildings (church and parsonage). The Court also considers the cadastral category in which the house is classified as irrelevant. However, the actual use of the parsonage must always be verified, as the accessory relationship may also be severed by conclusive facts.

The same reasoning applies to the dwellings of the parish priest’s collaborators, if they are religious serving the same parish church. The Court has, in fact, held that all the dwellings of the various parish priests assigned to the church are entitled to the exemption (Cassation, Section 5, November 12, 2021, no. 33766; Cassation, Section 5, November 16, 2021, no. 34451). Cooperation in the celebration of worship, the administration of sacraments, and the management of pastoral activities may extend the exemption to the parish priest’s collaborators.

Also exempt from IMU are properties intended for the accommodation of members of a religious congregation, in a manner like the use of a property by an owner and their family. These properties are in fact intended for the formation of clergy and religious (article 16, letter a, Law 222/1985) and are also destined for hospitality activities, including the accommodation of people in general, not necessarily third parties or strangers to the owning entity.

Similarly, the exemption also applies to properties of a non-commercial religious entity used by another religious entity. In fact, although the norm of letter g) of paragraph 759 of article 1 of Law 160/2019 requires the requirement of direct use by the owner, it should be remembered that article 71 of letter g) of Law 213/2023 has introduced an interpretative norm (therefore retroactive) of both the aforementioned letter g) and the previous provisions in the matter (article 7, paragraph 1, letter i, of Legislative Decree 504/1992), according to which the exemption also applies to properties granted on loan to another non-commercial entity structurally or functionally connected to the owning entity, on the condition that it uses it exclusively for carrying out one of the facilitated activities referred to in the aforementioned letter g), in a non-commercial manner. This norm derogates from the requirement of direct use. 

The Court concludes that consequently even the indirect use of the property through a loan for the exclusive destination to religious or worship activities by another ecclesiastical entity may be relevant for the purposes of Imu exemption in favour of the ecclesiastical entity that owns it.

General conditions for exemption 

From a probative standpoint, the taxpayer must limit themselves to demonstrating their status as a non-commercial entity, ecclesiastical entity, and, objectively, the exclusive use of the property for religious or cult activities, given the inherently non-commercial nature of the activity carried out. The burden of proof lies with the taxing authority to demonstrate any potential exercise of a commercial activity.

To summarise, the main conclusions on the topic are as follow:

• Conditional exemption: the IMU exemption for real estate owned by ecclesiastical entities is not automatic but is subject to the fulfilment of certain requirements.
• Purpose of use: the property must be used for the institution’s activities, such as worship, assistance, culture, religious education, and other non-commercial activities.
• Instrumentality: there must be a direct and concrete link between the use of the property and the institutional purposes of the entity.
• Commercial activity: if the property is also used to carry out commercial activities, the exemption may be partially or totally revoked.
• Compensation: the fact that a fee is charged for the use of the property does not necessarily exclude the exemption, provided that the fee is symbolic and does not alter the non-commercial nature of the activity carried out.
• Loan: even the use of the property as a loan to other ecclesiastical entities may fall within the exemption, provided that the property continues to be used for institutional activities.

General conclusions and what to do in case of dispute

The latest jurisprudential developments have reiterated that the IMU exemption for ecclesiastical entities must be interpreted restrictively, taking into account the public nature of the tax and the need to avoid undue tax evasion.

Here are the main points that emerge from this new ruling:

• Complexity of the matter: the jurisprudence on the matter is complex and articulated, and each concrete case must be evaluated based on its own peculiarities.
• Importance of specialized consultancy: ecclesiastical entities are advised to consult specialized consultants for a correct evaluation of their position and for the eventual definition of disputes with local authorities.
• Regulatory evolution: the regulations in this matter are subject to frequent changes, therefore it is fundamental to keep up to date on the latest jurisprudential and legislative developments.

In case of disputes with the local authority regarding the IMU, it is key to act promptly by availing of the assistance of a lawyer expert in tax matters. The law firm Fiat Lux can offer you personalised and immediate advice. Do not hesitate to contact us at info@fiatlux.legal for any clarification.