(Adds details, background)
BRUSSELS Dec 19 Italy won EU regulatory approval on Wednesday for a new property tax scheme, which stripped the Catholic Church of its exemption from local property taxes on its real estate used for commercial purposes.
Italian authorities implemented the new real estate law (IMU) in January this year, after the European Commission said a two-year investigation into the case showed tax breaks allowed under a previous scheme breached EU state aid rules.
The Commission, which acts as EU competition authority, said it had received a number of complaints that the exemptions gave some companies an unfair advantage.
The Italian church owns a vast portfolio of properties, which includes private clinics, hotels, bed and breakfast accommodation and guest houses, which have enjoyed tax-exempt status if part of the building was occupied by priests or nuns or had a chapel.
That created a grey area where many essentially commercial structures benefited from the religious exemption law.
"When (non-profit entities) operate on the same markets as commercial players, we need to make sure that they do not benefit from an undue advantage," EU Competition Commissioner Joaquin Almunia said in a statement, approving the revised scheme.
EU competition regulators said the new law complied with state aid rules in the 27-member European Union.
The legislation was part of a package of emergency budget measures introduced when Prime Minister Mario Monti's technocrat government took power last year and amid increasing calls for the Vatican to share sacrifices needed to deal with the debt crisis.
Estimates on how much the new scheme will bring the Italian government range from about 700 million euros to more than 1 billion euros. (Reporting by Foo Yun Chee; editing by Rex Merrifield and Stephen Nisbet)