The Vatican and Italy strike a deal on financial transparency

By Inés San Martín
Crux
April 1, 2015

http://www.cruxnow.com/church/2015/04/01/the-vatican-and-italy-strike-a-deal-on-financial-transparency/

The Vatican Bank operates from this massive round tower adjoining the papal apartments.

ROME — In the latest effort under Pope Francis to reform the Church’s finances, the Vatican and Italy reached an agreement on Wednesday to share financial and tax information, designed to help both states crack down on money-laundering and other illicit behavior.

The agreement is also intended to ensure that the so-called “Vatican bank,” which reportedly controls almost $10 billion in assets, no longer functions as an offshore tax haven for wealthy Italian VIPs, a perception that has long angered both tax officials and financial regulators in Italy.

Among other things, the agreement likely will mean that entities with deposits in the Vatican bank will have pay taxes on interest income to Italy.

Given that some of the most damaging complaints about Vatican money management over the years have come from Italian politicians, bankers, and regulators, the agreement could provide the Vatican with a firebreak against new scandal.

A Vatican official, speaking on condition of anonymity because he’s not authorized to discuss the agreement publicly, told Crux that the treaty is a sign of both nations recognizing each other’s sovereignty, and a step toward the transparency expected between two independent states.

The “Convention between the Holy See and the government of the Italian Republic in fiscal issues,” composed of 14 articles, was signed Wednesday in the offices of the Vatican secretary of state.

British Archbishop Paul Gallagher, the Vatican’s foreign minister, defined the agreement as a result of an effort by the Holy See to achieve transparency in financial matters that began in 2010 and that “has resulted in meaningful reforms welcomed by the international community.”

Gallagher said collaboration between the Holy See and Italy will also simplify the payment of taxes on income produced by assets held in the Vatican bank.

“In this way the Holy See and the institutions that operate in the Vatican City State will facilitate the activities of Italian tax authorities,” Gallagher said in an article published in the Vatican paper L’Osservatore Romano.

According to Gallagher, the agreement will serve everybody “residing in Italy that hold financial assets in Vatican territory,” such as religious institutes that have an account at the Vatican bank.

As a direct result of the convention, he said, they will have to pay taxes to the Italian government on interest earned on their bank deposits.

For decades, the bank — officially known as the Institute for the Works of Religion — has been eyed by global authorities as a hub for potentially illicit practices. Under Pope Benedict XVI and now Pope Francis, however, it has undergone significant reform, including the closing of as many as 3,000 accounts.

That process began in 2010, when Benedict XVI made the decision to open the Vatican to outside inspection of its financial rules and systems by the Council of Europe’s anti-money laundering agency Moneyval.

Although Wednesday’s agreement is a first for the Vatican, Italy has already signed similar treaties with Monaco and other countries considered tax havens. The country has one of the highest tax evasion rates in the European Union, with an estimated $100 billion to $140 billion in lost taxes every year.

The signing of the agreement took place barely a month after Italian Prime Minister Matteo Renzi confirmed that negotiations were underway in an interview with the newsmagazine L’Espresso.

In the interview, Renzi said he hoped to reach an agreement that would allow Italy to “recover a little bit of money also from the Vatican,” as the country did after similar deals with Switzerland, Montecarlo, and Liechtenstein.

At the time, a Vatican spokesman confirmed the talks. The Rev. Federico Lombardi said discussions were underway “to collaborate with Italy and go toward the goal of greater and more complete transparency and exchange of information for tax purposes.”