How is the Church funded?
For its support, the Church in Spain has several funding sources to provide for its activities.
The main ones are: direct contributions made by the faithful (donations, subscriptions and others); the collaboration of the public administrations (by virtue of article 16 of the Spanish Constitution); the management of its own resources (assets, service provision, etc.).
One of these avenues of collaboration of the public administration is the Tax Allocation. This is a mechanism through which taxpayers who submit their income tax return can allocate 0.7% of their total contribution to the Catholic Church. This allocation does not mean that taxpayers have to pay more or have less money repaid and it is totally compatible with and independent of the allocation for other purposes of social interest.
The Church, in an exercise of transparency, each year reports the amount it has received as Tax Allocation from taxpayers, and for which purposes that amount has been earmarked. Once this amount has been distributed, mainly to the dioceses, it will become part of their diocesan economy. All this information is presented each year in the Annual Report on the SEC’s activities.
According to the latest data available, nearly 9 million people check the box in favour of the Catholic Church in our country, approximately 900,000 more than did so in the year 2006.
The Church appreciates this gesture and encourages people to continue to do this so that we can continue performing all the tasks we do in favour of society as a whole.
The investment the Catholic Church makes in society is equivalent to more than 138% of what it receives through the Tax Allocation. In other words, for every euro collected through the Tax Allocation, the Church invests 1.38 euros in society according to a recent study commissioned by the Spanish Episcopal Conference from KPMG.
System of tax allocation to the Catholic Church. Where does it come from?
The agreement of 3 January 1979 between the Holy See and the Spanish State establishes the State’s commitment to collaborating in the suitable support of the Catholic Church by establishing a Tax Allocation system.
The 18th additional provision of Act 42/2006 of 28 December on the General State Budget for 2017 establishes the new Tax Allocation system in force since 2007 by which the Church no longer receives amounts charged to the General State Budget for its basic support. This entailed the cessation of what is known as the budget complement.
This means that the Church no longer receives amounts charged to the General State Budget for its basic support; instead, any citizens who wish to do so can decide that 0.7% of their contribution be allocated to the needs of the Church by ticking the box in favour of the Catholic Church in their tax return. This is of major importance because in this way supporting the Church depends exclusively on the contributions of the faithful through the different ways established for this purpose (tax return, donations, etc.).
Exchange of Notes between the Apostolic Nunciature in Spain and the Ministry of Foreign Affairs and Cooperation referring to the agreements on tax allocation in favour of the Catholic Church
The Apostolic Nunciature in Spain and the Ministry of Foreign Affairs and Cooperation report that today respective Notes have been exchanged referring to the agreements reached on tax allocation in favour of the Catholic Church and, with the waiver by the Church, of the VAT exemption and its corresponding compensation.
Both parties thus express their conformity on the interpretation of the agreement between the Spanish Episcopal Conference and the Spanish Government as part of the provisions of the Agreement on Economic Affairs of 3 January 1979 signed between the Spanish State and the Holy See.
Below we transcribe the Verbal Note sent by the Papal Nuncio, in which he expresses the Holy See’s conformity with the Verbal Note sent by the Minister.
“Minister:
I have the honour of addressing Your Excellency in order to acknowledge receipt of your Note dated 21st of this month, whose text I transcribe below:
Apostolic Nuncio
I have the honour of addressing Your Excellency on behalf of the Spanish Government in regard to the Agreement on Economic Affairs of 3 January 1979 signed between Spain and the Holy See.
In its art II 1, the Agreement established Spain’s commitment to collaborating with the Catholic Church in pursuit of its suitable economic support, with absolute respect for the principle of religious freedom.
That same article II, which defines the financial collaboration systems between Spain and the Holy See, stipulates in its paragraphs 2 and 3 that the State can assign a yield from taxation to the Catholic Church provided that each taxpayer expressly states their will in their corresponding tax return in regard to the use made of the affected part. This system would have to be established throughout a transitory period in which the overall state provision would gradually be replaced with the tax allocation (paragraph 4).
Moreover, in its article III, the Agreement stipulates that the Catholic Church will be exempt from paying taxes “on expenditure or consumption” as part of the provisions of article III itself and of article IV. This exemption is applied to operations made by certain institutions of the Catholic Church in Spain, among them “the acquisition of objects intended for worship”. The reference to “taxes on expenditure or consumption” has to be understood to be made about VAT after the implementation of this tax in Spain.
As Your Excellency knows, in the past year the Spanish Government, on one part, and the Spanish Episcopal Conference with the agreement of the Holy See, on the other, initiated conversations to agree on a satisfactory solution for the funding system of the Catholic Church in Spain, including topics relative to tax allocation and to tax exemptions covered by the Economic Affairs Agreement, especially in regard to VAT. As part of these conversations, the Spanish Government has proposed that the compensation for the loss of VAT exemption in favour of the Catholic Church, which is demanded of Spain by enforceable EU Law and should be compatible with the tax obligations corresponding to the State by virtue of the Agreement, should be included in the calculation of the percentage of tax allocation. As a result of these negotiations, on 22 September 2006 the Spanish Government publicly announced the verbal agreement reached with the Catholic Church on Economic issues, with the contents of this agreement being confirmed by the Spanish Episcopal Conference.
The basic points of the above-mentioned commitment are the following:
- replacement of the budget complement by tax allocation.
- raising of the current coefficient of tax allocation to 0.7 per cent;
- withdrawal of current exemptions and non-liabilities from the Catholic Church as regards VAT;
- commitment of the Catholic Church to submitting an explanatory report on the amounts received from the State through the tax allocation.
Taking all of the above into account, and as part of the provisions of article VI of the Agreement on Economic Affairs and section 2 of the Additional Protocol to the mentioned Agreement, I have the honour of informing you of my Government’s position on the interpretation that should be given in the future to the precepts of the Agreement on Economic Affairs mentioned above:
- The Spanish Government has undertaken to bring into the General State Budget Act an Additional Provision that contemplates the budget allocation system, enforced by article II, paragraphs 2 and 3, of the Agreement between Spain and the Holy See. By the same provision, the tax coefficient shall be raised to 0.7% on a stable basis.
- For its part, the Holy See estimates this commitment to be sufficient for concluding the process of replacing the state contribution, considering that the percentage of tax allocation set at 0.7% of Personal Income Tax is a stable one.
- The Holy See recognizes that the review of the tax allocation system for the Catholic Church covered by the additional provision of the General State Budget Draft Legislation for the year 2007 includes the assumption by the Catholic Church of VAT liability in the terms foreseen in EU legislation. And considers that this does not cause any injury to the assets of the Catholic Church so long as the new tax allocation system agreed between the Spanish Government and the Spanish Episcopal Conference remains in force. Equally, the Holy See understands that any exemptions granted prior to the entry into force of the General State Budget Act for the year 2007 and provisions that enforce it should be maintained.
- For its part, the Spanish Government informs the Holy See that it will proceed to repeal the Ministerial Order (Ministry of Economy and Finance) of 29 February 1988, which clarifies the scope of non-liability and exemptions established in articles III and IV of the Agreement on Economic Affairs.
My Government considers that the above, which reflects the negotiations maintained and agreement reached between the Spanish Government and the Spanish Episcopal Conference with the agreement of the Holy See, constitutes an enforcement of the provisions of article II on the Agreement on Economic Affairs, part of the mechanism of consultations and agreement covered in article VI of the Agreement for cases where queries or difficulties arise in the interpretation or enforcement of the Agreement as well as in paragraph 2 of the Additional Protocol for those cases in which a substantial change occurs in the legal and taxation system in force in Spain.
I would be grateful if, for its part, the Apostolic Nunciature would confirm that the same interpretation is shared by the Holy See. In that case, I propose that, should you agree with it, the interpretation contained in this Verbal Note be applicable by both parties in regard to the Agreement between Spain and the Holy See from 1 January 2007 onwards.
Expressing the Holy See’s conformity with the text of the transcribed Note, I take this opportunity to renew, Minister, the expressions of my highest consideration and esteem”.
Friday 22 December , 2006