Purely religious activities and education funded by the state are not economic in nature.

Sign up for free news alert

Sign Up For Free


On 27 June 2017 the Court of Justice ruled in case C‑74/16, Congregación de Escuelas Pías Provincia Betania v Ayuntamiento de Getafe.[1] The ruling was in response to a request from a Spanish administrative court dealing with a tax dispute between religious schools and the municipality of Getafe.

This is an important judgment because the Court had to answer the question whether activities carried out by religious establishments were economic in nature. The gravity of the case is indicated by the fact that the judgment was delivered by the Grand Chamber that included both the President and the Vice President of the Court of Justice. One, therefore, has to be circumspect in assessing this case. On first reading, the judgment is instructive. It takes readers by the hand and guides them through the criteria of Article 107(1) TFEU. However, on reflection, several aspects in the judgment are puzzling and they need to be analysed in detail. For this reason, this article is longer than the usual length of 2000 words and is divided in two parts. Part I, that is published this week, examines the concept of economic activity. Next week, part II will review the rest of the judgment.

Part I


In Spain, the Catholic Church is exempt from property taxes. In this case, buildings owned by the so-called “Congregación”, a part of the Catholic Church, were used for purposes other than purely religious activities. For example, those buildings were used as classrooms or to offer meals. For this reason the municipal tax office refused to grant exemption from property taxes. At issue was the applicability of Article 107(1) TFEU and, in particular, whether the non-religious activities were economic in nature and whether their economic character affected the designation of the buildings as places of religious activity.

After finding that the request was admissible, the Court of Justice reiterated the standard conditions that had to be satisfied by a measure in order to constitute State aid. Then the Court defined its tasks as follows:

“(40) It is necessary to consider in the present case (i) whether the Congregación may be classified as an ‘undertaking’ for the purposes of Article 107(1) TFEU, (ii) whether the tax exemption at issue in the main proceedings confers a selective economic advantage on the Congregación, (iii) whether that measure represents intervention by the Spanish State or through resources of that Member State and (iv) whether the exemption is liable to affect trade between Member States and distort or threaten to distort competition within the internal market.”

In addition, at the end of the judgment the Court examined whether, in case the tax exemption could be regarded as State aid, it could be classified as existing or new aid. New aid has to be notified. Since the exemption had not been notified, it would immediately be illegal aid and actionable before national courts.

The concepts of “undertaking” and “economic activity”

The Court first recalled that the concept of “undertaking” covers any entity engaged in an economic activity, regardless of its legal status and the way by which it is financed. It is irrelevant whether it is private or public. The Court also noted that as long as an activity is “economic”, the religious status of the entity that carries out that activity cannot remove it from the scope of Article 107(1), and that each of the different activities of an entity must be examined whether it is economic. In other words, Article 107(1) does not become inapplicable just because the main activities of an entity are religious. This is because a mainly religious entity becomes an undertaking in relation to any of its economic activities, even if they form a small part of what it does.


The Court also repeated the well-established principles that an economic activity consists of the offering goods or services on a given market and that the offering of goods or services on a “(46) not-for-profit basis does not prevent the entity which carries out those operations on the market from being considered an undertaking, since that offer exists in competition with that of other operators which do seek to make a profit.”

It went on to explain that “(47) services normally provided for remuneration are services that may be classified as ‘economic activities’. The essential characteristic of remuneration lies in the fact that it constitutes consideration for the service in question”.

The Court could have added at this point that even if the entity in question is non-profit, the prices charged must still cover its costs, otherwise it will have to exit the market. As the Court has noted in other cases, prices charged by non-profit entities are still regarded as “consideration” for the value of the goods or services they provide.

Conversely, the charging of a nominal price or fee does not necessarily indicate the presence of an economic activity. Only non-undertakings such as charities or the state would offer a service at a nominal price or fee that would not constitute consideration for the value of that service. This is the case when the price or fee intentionally and persistently is set at a level below cost, or even at zero. No market operator would want to sell consistently at below cost or could survive for long on the market by selling below cost. This means that promotional discounts, seasonal sales and clearance offers, which are standard commercial practices, are not sufficient to turn a market activity into non-economic. They are deviations from the profit-maximising objective of every business or the cost-covering objective of every non-profit entity.

The Court of Justice then applied the principles it identified to education and observed that “(48) courses provided by educational establishments financed essentially by private funds that do not come from the provider itself constitute services, since the aim of such establishments is to offer a service for remuneration”. This is true. If a course is funded by the users and the cost of that course is not subsidised by any other source, then the price charged must necessarily cover its cost, otherwise it would be a loss making activity that could not be maintained for long.

The Court went on to add that “(49) it is not necessary for that private financing to be provided principally by the pupils or their parents, as the economic nature of an activity does not depend on the service concerned being paid for by those for whom it is performed”. This is also true. Costs must always be covered one way or another. This applies to non-economic activities too. But the significance of this statement is not obvious. If students or their parents do not pay a fee that covers the full cost of the course, which other private funder would cover it? Presumably, a (private) charity could cover the difference, but still it would not alter the economic nature of the course. The provider of the course must cover its full costs either by fees or by a combination of fees and contributions by third parties.

The Court proceeded to distinguish between privately funded and publicly funded education  and, as we will see below, this distinction was considered to be decisive for the outcome of the judgment. It explained that “(50) the same cannot be said, however, of courses provided by certain establishments which are integrated into a system of public education and financed, entirely or mainly, by public funds. Indeed, in establishing and maintaining such a system of public education, which is, as a general rule, financed from public funds and not by pupils or their parents, the State is not seeking to engage in gainful activity, but is fulfilling its social, cultural and educational obligations towards its population”.

The Court should have emphasised the role of “gainful activity” and given less prominence to the source funding – the state – or the size of the state funding. It seems to me that what happens when the state funds a good or service for the benefit of citizens is that users pay little or nothing. Any nominal price or fee they may pay does not correspond to a consideration for the value of the good or service and the supplier does not obtain a remuneration for what it provides. In our world of no free lunches, even the state cannot ignore the economic law of nature that that the cost of any good or service has to be covered by somebody. The cost can be covered by taxpayers through redistributive policies, or by users through market transactions, or by contributions from third parties in the form of charity or social solidarity. But the crux of the issue is not whether costs are covered. They must be covered by somebody. The issue is whether the providers offer goods and services for consideration.

Hence, whether something is economic does not depend on who funds it, but on whether those who provide it charge a price that covers its cost and, as a result, they get to be remunerated. After all, State aid exists precisely because the state funds partly or sometimes wholly the cost of a product [see, for example, the many recent cases of close to 100% aid intensity for commercial infrastructure projects]. So what is the difference between state funding that is not economic and state funding that is economic? Certainly, the difference is not the origin of the funds at the input side. The difference is the charging of a price that constitutes remuneration at the output side. An activity or product is non-economic when the beneficiaries or users have a right to it [e.g. health or education services], deserve it [e.g. research awards or prizes] or need it [e.g. shelters for homeless or rescue services]. Commercial transactions on the market are not determined by rights, deservedness or need. They are determined solely by affordability; i.e. whether the buyer can afford the price charged by the seller who wants to cover costs and make a profit. Public education is offered for free or for a nominal fee because it is a right. Citizens “consume” education not according to what they can afford to pay, but according to what they have a right to or need. This is the reason why public education is not economic.


The Court also stressed that when an entity carries out both economic and non-economic activities it must account for them separately. “(51) It is possible that a single establishment may carry on a number of activities, both economic and non-economic, provided that it keeps separate accounts for the different funds that it receives so as to exclude any risk of cross-subsidisation of its economic activities by means of public funds received for its non-economic activities.”

It then turned its attention to the Spanish case by, first, observing that the Congregación was engaged in three types of activity: religious activities, education subsidised by the Spanish State and non-compulsory education receiving no financial support from the Spanish State. In addition, the Congregación provided catering and transport services for its pupils.

Second, the Court explained that there had to be a link between the property that was exempt from tax and the different types of activity carried out there. “(53) Given that the tax exemption at issue in the main proceedings concerns the renovation and extension of the school hall […] and that the Congregación stated […] that the hall is used only for the educational activities it offers, that exemption appears to have no connection with either the strictly religious activities of the Congregación or the complementary services”.

Therefore, the decisive elements in this case were, first, whether the educational activities were compulsory and therefore non-economic or non-compulsory and therefore economic and, second, whether the premises were used for the non-economic or economic activities. The Court of Justice left it to the referring Spanish court to examine what kind of educational services were offered and to draw its conclusions with regard to their economic nature. The Congregación, the Municipality and the Spanish government argued that the educational activities were subsidised by the Spanish state, were integrated in Spain’s system of public education and were financed in full from public funds.

The Court instructed the national court to verify the veracity of those arguments and concluded that if “(56) the educational activities of the Congregación […] are subsidised by the Spanish State, [they] could not […] be classified as ‘economic’.” “(57) By contrast, […] educational activities that are not financed by the Spanish State, corresponding to early-years teaching, extracurricular activities and post-compulsory education, meet all the criteria […] for classification as ‘economic activities’”. Indeed, it appeared that those activities were not funded by the Spanish state. Instead, they were autonomously organised by the Congregación and they were funded by fees paid by students. But, this was also left for the national court to verify. The precise wording used by the Court was that they were “(58) […] financed essentially by private contributions, especially from students and their parents, to school costs.” This very sentence does not unfortunately clarify whether the fees or “contributions” by students and parents covered a significant part or all of the related costs. This is because partial coverage by the users leaves open the possibility that the rest of the private contributions came from the Congregación or the Church itself. This would complicate matters because it would mean that the Congregación offered a service for a fee that fell short of the overall cost of the service without receiving a state subsidy. Would that constitute economic activity, especially when we know from other cases that the charging of a nominal fee does not make an activity economic in nature?

But the Court continued that “(59) if, […] the educational activities of the Congregación that are not subsidised by the Spanish State constitute an ‘economic activity’, it would then have to ascertain whether the school hall at ‘La Inmaculada’ is used exclusively for one or other of those educational activities or whether its use is mixed.” The Court of Justice appeared to ignore the possibility that an activity that is not subsidised by the state can still be non-economic, especially if the price that is charged is not intended to cover its costs. “(60) If the hall were used solely for educational activities subsidised by the Spanish State and meeting all the criteria set out in paragraph 50 of the present judgment [i.e. funded by public funds], the tax exemption at issue in the main proceedings would not fall under the prohibition in Article 107(1) TFEU.” “(61) If, on the other hand, the school hall were used exclusively for the educational activities provided by the Congregación without financial support from the Spanish State and meeting the criteria set out in paragraphs 44 to 49 of the present judgment [i.e. services provided for remuneration], the exemption at issue in the main proceedings might well fall under that prohibition.”

“(62) If there is mixed use of that hall, the tax exemption […] might be caught by the prohibition in so far as the hall is used for activities meeting the criteria set out in paragraphs 44 to 49 and 51 of the present judgment.” “(63) It follows from all the foregoing considerations that the prohibition in Article 107(1) TFEU can only apply to the tax exemption at issue in the main proceedings if (i) at least some of the educational activities carried on by the Congregación at ‘La Inmaculada’ school have to be classified as ‘economic activities’ within the meaning of the case-law referred to in paragraphs 44 to 49 of the present judgment and (ii) the hall is used, at least in part, for such economic activities.”

The paragraphs 62 and 63 of the judgment will create headaches for the national court for the following two reasons. First, in paragraph 51, the Court of Justice referred to account separation. Yet in paragraphs 62 and 63 makes no mention of separate accounts, apart from citing paragraph 51. The unconditional language of paragraphs 62 and 63 and the mere citing of paragraph 51 open the possibility that the national court will consider that even a small amount of economic activity makes the whole hall economic in nature. The Court of Justice could have been clearer on this point.

Second, although the Court of Justice stated that there must be a link between the economic activities and the use of the hall, it does not mention anything about a threshold in the proportion of the costs of the hall that may be attributed to economic activities. Even if separate accounts are held, would economic activities of, say, 5% of the overall costs still be considered to be economic? Or, if separate accounts are not properly held, and there is uncertainty as to whether the share of economic activities is 5% or 10%, would this be sufficient to make the whole Congregación economic? This is the issue of ancillary activities that are so small as to be deemed not to affect the non-economic status of the entity that carries them out.

Coming up next week: PART II.


[1] The full text of the judgment can be accessed at:

[Photo credit: Birgit from]


by Phedon Nicolaides, Friday, 19 January 2018, 09:32:43

Thank you for your comment and congratulations!

by Victoria Rodríguez, Wednesday, 17 January 2018, 21:23:18

We have won! The judge considers that all the requirements to be considered a State aid are met. The entity carries out economic and non-economic activities in the property subject to the tax and meets all the requirements of the Article 107 of the Treaty on the Functioning of the European Union. It is a selective advantage, attributable to the state and capable of affecting trade between Member States and distorting competition. It has also considered that it is not possible to apply the exception of the Minimis Rule, because the religious entity has not proven that the threshold of 200.000,00€ has not been exceeded. The Congregation did not provide separate accounts of the subsidized and non-subsidized educational activity). In addition, the judge doubts that the application of this exception of the Minimis Rule to the case because of the difficulty that entails because it is a non-transparent tax in terms of the Regulation.

by Phedon Nicolaides, Tuesday, 18 July 2017, 10:42:47

Dear Carmen Butler, Thank you for your comment. What I had in mind was a foundation awarding prizes to researchers who discover something significant [e.g. Nobel prize]. Naturally, state subsidies to research can also be granted to economic activities, even if the recipient undertakings may “deserve” them because they do something good for the economy.

by Phedon Nicolaides, Monday, 17 July 2017, 17:23:25

Dear Vegard, thank you for your comment. It is a complex issue. Your last point on compliance with public procurement rules reminds me of the Altmark criteria. I think an entity selected on the basis of a competitive procedure, having its costs covered by the state, can be very well acting as an (efficient) undertaking

by Carmen Butler, Monday, 17 July 2017, 10:43:24

Dear Professor Nicolaides, Thank you for your article, insightful and informative as always. One statement in your article raised a question for me. You wrote, ”An activity or product is non-economic when the beneficiaries or users have a right to it [e.g. health or education services], deserve it [e.g. research awards or prizes] or need it [e.g. shelters for homeless or rescue services].” I reacted to your statement that an activity can be non-economic when the beneficiaries or users deserve it. You gave two examples: research awards or prizes. There are certainly limits to when such activities can be considered non-economic, but the statement here is broad-reaching. I wonder if you could comment. Thank you.

by Vegard, Friday, 14 July 2017, 11:41:54

Thank you for yet another eye-opening article. The following to-the point remark got me thinking: "Hence, whether something is economic does not depend on who funds it, but on whether those who provide it charge a price that covers its cost and, as a result, they get to be remunerated." One could, in economic terms, argue that the Congregación (the output side) has charged a price that constitutes remuneration when the total amount of state subsidies based on an agreement and student fees (the input side) covers the cost of the education. The buyer would be both the students and the State. Under such terms, the Congregación would not be making a permanent loss. The Court, however, distinguishes between private funds (para 48) and public funds (para 50) on the input side. It is this distinction that seemingly enables the Court to reach the conclusion in para 56 that "the educational activities of the Congregación that are subsidised by the Spanish State could not, according to the Court’s case-law set out in paragraphs 41 to 50 of the present judgment, be classified as ‘economic’". The antithesis being that if the funds had come from a private entity, the outcome would have been very different. The key to the Court's distinction between private and public funds could perhaps be not the origin of the funds themselves, but the fact that the Congregación is "integrated into a system of public education" by way of the agreement described in para 55. Apparently, the Court has identified the part of the Congregación providing the education and the State as one, for the sake of the assessment of an economic activity, where the virtues of the State (providing the services at a permanent loss for the sake of solidarity) prevails. In fact, the Court states in para 50 that the State "is not seeking to engage in gainful activity", but it does not assess or comment on whether that is the case also for the Congregación. Nevertheless, the Court concludes in para 56 that the activity is not of an economic nature. This implies that the Court takes it as granted that the Congregación is not seeking to engage in gainful activity. One could argue that the Court takes a holistic view, where only the characteristics of the service seen from the beneficiaries' point of view matter: There is only a nominal payment for services that the beneficiaries are entitled to, and the state funds the services based on solidarity and universal access. The practical arrangements as to how the services are produced and delivered are not relevant. The providers of the actual service, whether they are public or private entities, carry out non-economic activities even though they may receive remuneration in economic terms. This line of thinking should be the same where a private charity funds the services, at a permanent loss. In such a case, the service provider would be "integrated in a system" of charity. If one were to extrapolate the Court's findings, do you find this to be a fair generalization? Private entities do not carry out an economic activity when a) they provide services to beneficiaries who (by law) are entitled to them, b) the beneficiaries only pay a nominal fee and c) the State (or a private charity making pemanent losses on the services) covers the private entity's remaining costs according to an agreement or contract set up in accordance with the EU rules on public procurement?

by Phedon Nicolaides, Wednesday, 12 July 2017, 15:23:26

Many thanks for the comment. We agree that regardless of motives, someone has to bear the full cost of the good or service that is provided. When I buy food for my children, I provide it to them free of charge, but I still have to bear the full cost. The fact that I am not acting economically or commercially does not make costs disappear. It merely shifts them from the users to the provider. A commercial operator would accept to bear costs that exceed the price it charges only temporarily and only because it is a profit-maximising strategy in the long-term. It is in this sense that, in the context of state aid law, the intentional shifting of costs away from the users indicates a non-economic activity. For example, the cost of shelters for the homeless is borne by voluntary contributions. The cost of public education is borne by taxpayers. But there is another reason that this shifting of costs is intentional. The users are not charged a price that covers cost because they are considered to be entitled to or in need of the particular good or service. Price is just a mechanism for allocating scarce resources according to ability to pay. But some goods and services are provided regardless of ability to pay so as not exclude those who cannot afford them. Ability to pay, in this instance, would be contrary to rights or needs. Therefore, if you think that intentions would not fit in state aid law, then this idea can be expressed in the form of the following two-step test: i) Is the good or service provided on a constant basis at a loss without contributing to the revenue of another good or service? ii) If yes, is “consumption” of the good or service in question rationed on the basis of non-price criteria and users have no obligation to buy any other good or service? The answer must be “yes” in both steps.

by Hans, Tuesday, 11 July 2017, 13:09:08

Dear Phedon, Many thanks for another very informative contribution and the observation that it seems clear prima facie but not so clear when you think it through. I believe that you're correct when you state that the identity of the funder of the activity should not matter. In this regard you write: The Court went on to add that “(49) it is not necessary for that private financing to be provided principally by the pupils or their parents, as the economic nature of an activity does not depend on the service concerned being paid for by those for whom it is performed”. This is also true. Costs must always be covered one way or another. This applies to non-economic activities too. But the significance of this statement is not obvious. I'd say that it is obvious and problematic at the same time. The first (non-problematic) example to come to mind would be the situation where a company pays for - say - one of the courses you teach to one of their employees. This is obviously economic in nature. The problematic example is where the church funds such services (paraphrasing the Court here) not seeking to engage in gainful activity, but in order to fullfil its social, cultural and educational obligations towards its congregation. In this example, the objective an entity pursues (lets call it enlightenment) makes the activity non-economic. This cannot be right in light of the Court's standard considerations that its the effects, not the intention that matters. So I guess this is just the Court's response to entering a minefield: gnomic caselaw.

Click here to comment upon this article

State Aid Uncovered
Opinions by Phedon Nicolaides

Share this now

Follow by Email


Phedon Nicolaides

Professor at the College of Europe, Bruges, and at the University of Maastricht, and Academic Director at lexxion training

Search this Blog

Upcoming lexxion trainings with Phedon Nicolaides:

Inhouse Training on State Aid
Choose date & town

Recent Comments