Vatican told to pay taxes as Italy tackles budget crisis

End of controversial property tax breaks leaves the Pope facing €600m-a-year bill

After several years of scandal in which the Catholic Church has faced allegations of financial impropriety, paedophile priests and rumours of plots to kill the Pope, the Vatican is now facing a new €600m-a-year tax bill as Rome seeks to head off European Commission censure over controversial property tax breaks enjoyed by the Church.

As the EC heads closer to officially condemning the fiscal perks enjoyed by the Catholic Church and introduced by the Berlusconi administration, Prime Minister Mario Monti has written to the Competition Commissioner, Joaquin Almunia, saying that the Vatican will resume property tax, or Ici, payments.

Mr Almunia said in 2010 that the exemption amounted to state aid that might breach EU competition law. A parliamentary proposal by the Italian Radicals party last August to repeal the exemption, with a successful petition on Facebook, upped the pressure. A spokesman for Mr Almunia appeared to give the thumbs-up yesterday: "It is a proposal that constitutes a significant progress on the issue and I hope will be implemented," he said.

"This is a victory for public pressure," said Mario Staderini, the leader of the Italian Radicals party. "We've managed to break down – a little bit – the wall protecting the Church."

The Vatican avoids Ici tax on about 100,000 properties, classed as non-commercial, including 8,779 schools, 26,300 ecclesiastical structures and 4,714 hospitals and clinics.

Estimates of its annual saving from avoiding the levy range widely from €600m to €2.2bn. The Church, however, says the tax exemption is worth only €100m a year. Neither is it clear from Mr Monti's comments how much Ici tax the Church will now have to pay.

Since 2005 church-run organisations have not been considered ordinary commercial structures and have been exempt. According to Corriere della Sera newspaper, tax authorities will judge how much of a property is used purely for religious purposes and tax it accordingly. Thus a church will remain exempt. But a hostel with a chapel would have to make contributions. In addition, Mr Monti said in his letter that by changing the law, and removing some of the church's exemption from Ici, he expected the EC to relent on demands that tax payments be backdated.

"We think the Church should have to pay the arrears," said Mr Staderini. "It should make the payment back to 2005. Given how much the Vatican stood to pay with arrears, I think they will not be that unhappy with the result."

Monsignor Domenico Pompili, a spokesman for the Italian Bishops Conference said the Church hoped the "social value" of their establishments would be taken into account.

Meanwhile, as the Vatican financial authorities do their sums and continue to lobby, the Holy See has announced an official investigation into a series of embarrassing leaks. After the child abuse and financial scandals of recent years, the prospects for another annus horribilis were underlined last week when a document emerged suggesting there was a plot to kill Pope Benedict XVI this year.

"It's now complete war inside the Vatican," said Robert Mickens, The Tablet's Rome correspondent, who has20 years' experience of reporting on the Vatican. "Things are falling apart."

The rancour has been blamed on manoeuvring surrounding the succession of Pope Benedict and the exceptional unpopularity of the current leadership.