As part of ongoing efforts by the Vatican to increase financial transparency and accountability, an agreement between the Holy See and Italy concerning taxes went into effect Oct. 15.
The Vatican released further details about the agreement in a press release Oct. 17, reiterating that individuals and entities had 180 days from the date of implementation to follow the convention's mandates, complete the necessary paperwork and – for those with Vatican bank accounts – to inform the proper Italian tax authorities.
The convention's application will be overseen by the Vatican Secretariat of State, the press release said.
The tax convention on income from capital and other income from financial activities in Vatican City State applies to citizens whose tax residence is in Italy.
The agreement, initially signed April 1, 2015, includes the full exchange of financial information about asset holders who are subject to Italian taxes and establishes the procedures necessary for declaring and paying taxes on income, which would include interest or earnings from bonds, investments and savings in Vatican institutions.
The bilateral convention was meant to clarify and simplify rules and procedures concerning tax obligations and taxpayer information. It parallels standard agreements between countries on tax matters and follows a general model developed by the Organization for Economic Cooperation and Development, which seeks to reduce possibilities for tax evasion.
The convention applies to individuals and entities with Italian residence and subject to Italian taxes such as clerics, dignitaries, Vatican employees, wage-earners – including temporary hires and pensioners of the Holy See – as well as institutes of consecrated life, societies of apostolic life and other foundations and entities.
The Lateran Pacts of 1929, in which the Vatican and the Italian state recognized each other as sovereign nations, established that Vatican salaries would be tax-free and institutions on Vatican property, including "extraterritorial" property outside Vatican City State walls, would be tax-exempt. Those properties include pontifical universities, seminaries and the headquarters of religious orders.
A separate tax agreement between the Vatican and Italy in 2012 established that commercial church-owned businesses in Italy, such as guest houses run by religious institutes, were subject to Italian taxes.
Properties used for purely religious, nonprofit purposes were tax-exempt under the 2012 agreement and will continue to be exempt under the new convention. However, Italy still would have no right to tax "central bodies of the Catholic Church" headquartered on Vatican property and any profit-making entities operating inside Vatican City, such as the Vatican Museums and publishing house, according to a source familiar with the convention.