The Government of the United States of America and the Government of the State of Israel, desiring to conclude a convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income have agreed as follows: ARTICLE 1 Taxes Covered 　　1. The taxes which are the subject of this Convention are: 　　(a) In the case of the United States, the Federal income taxes imposed by the Internal Revenue Code, and 　　(b) In the case of Israel- 　　(i) The income tax (including capital gains tax), 　　(ii) The company tax, 　　(iii) The tax on gains from the sale of land under the land appreciation tax law, 　　(iv) The tax on income levied under the services tax law (banking institutions and insurance companies), and 　　(v) The war loans and security loans, hereinafter referred to as "compulsory loans". 　　2. This Convention shall also apply to taxes substantially similar to those covered by paragraph (1) which are imposed in addition to, or in place of, existing taxes after the date of signature of this Convention. 　　3. For the purpose of Article 27 (Nondiscrimination), this Convention shall also apply to taxes of every kind imposed at the national level. 　　4. The competent authorities of the Contracting States shall notify each other of substantial amendments of the tax laws referred to in paragraph (1) and of the adoption of any taxes referred to in paragraph (2) by transmitting the texts of any substantial amendments or new statutes. 　　5. The competent authorities of the Contracting States shall notify each other of the publication by their respective contracting States of any material concerning the application of this Convention, whether in the form of regulations, rulings, or judicial decisions by transmitting the texts of any such materials. ARTICLE 2 General Definitions 　　1. In this Convention, unless the context otherwise requires: 　　(a) (i) The term "United States" means the United States of America; and 　　(ii) When used in a geographical sense, the term "United States" means the states thereof and the District of Columbia. Such terms also includes: 　　(A) The territorial sea thereof, and 　　(B) The seabed and subsoil of the submarine areas adjacent to the coast thereof, but beyond the territorial sea, over which the United States exercises sovereign rights, in accordance with international law, for the purpose of exploration for and exploitation of the natural resources of such areas, but only to the extent that the person, property, or activity to which the Convention is being applied is connected with such exploration or exploitation. 　　(b) (i) The term "Israel" means the State of Israel; and 　　(ii) When used in a geographical sense the term "Israel" includes: 　　(A) The territorial sea thereof, and 　　(B) The seabed and subsoil of the submarine areas adjacent to the coast thereof, but beyond the territorial sea, over which Israel exercises sovereign rights, in accordance with international law, for the purpose of exploration for and exploitation of the natural resources of such area, but only to the extent that the person, property, or activity to which this Convention is being applied is connected with such exploration or exploitation. 　　(c) The term "Contracting State" means the United States or Israel, as the context requires. 　　(d) The term "State" means any national State, whether or not one of the Contracting States. 　　(e) The term "person" includes an individual, a partnership, a corporation, an estate, or a trust. 　　(f) (i) The term "United States corporation" means a corporation (or any unincorporated entity treated as a corporation for United States tax purposes) which is created or organized under the laws of the United States or any state thereof or the District of Columbia; and 　　(ii) The term "Israeli corporation" means any body of persons taxed as a body of persons resident in Israel under the income tax ordinance. 　　(g) The term "competent authority" means: 　　(i) In the case of the United States, the Secretary of the Treasury or his delegate, and 　　(ii) In the case of Israel, the Minister of Finance or his delegate. 　　(h) The term "tax" means tax imposed by the United States or Israel, whichever is applicable, to which this Convention applies by virtue of Article 1 (Taxes Covered). 　　(i) The term "international traffic" means any voyage of a ship or aircraft operated by a resident of one of the Contracting States except where such voyage is confined solely to places within a Contracting State. 　　2. Any other term used in this Convention and not defined in this Convention shall, unless the context otherwise requires, have the meaning which it has under the laws of the Contracting State whose tax is being determined. Notwithstanding the preceding sentence, if the meaning of such a term under the laws of one of the Contracting States is different from the meaning of the term under the laws of the other Contracting State, or if the meaning of such a term is not readily determinable under the laws of one of the Contracting States; the competent authorities of the Contracting States may, in order to prevent double taxation or to further any other purpose of this Convention, establish a common meaning of the term for the purposes of this Convention. ARTICLE 3 Fiscal Residence 　　1. In this Convention: 　　(a) The term "resident of Israel" means: 　　(i) An Israeli corporation, and 　　(ii) Any other person (except a corporation or any entity treated under Israeli law as a corporation) resident in Israel for purposes of Israeli tax, but in the case of a partnership, estate, or trust only to the extent that the income derived by such partnership, estate, or trust is subject to Israeli tax as the income of a resident either in the hands of the respective entity or of its partners or beneficiaries. 　　(b) The, term "resident of the United States" means: 　　(i) A United States corporation, and 　　(ii) Any other person (except a corporation or any entity treated as a corporation for United States tax purposes) resident in the United States for purposes of United States tax, but in the case of a partnership, estate, or trust only to the extent that the income derived by such partnership, estate, or trust is subject to United States tax as the income of a resident either in the hands of the respective entity or of its partners or beneficiaries. 　　2. Where by reason of the provisions of paragraph (1) an individual is a resident of both Contracting States: 　　(a) He shall he deemed to be a resident of that Contracting State in which he maintains his permanent home. If he has a permanent home in both Contracting States or in neither of the Contracting States, he shall be deemed to be a resident of that Contracting State with which his personal and economic relations are closest (center of vital interests). In the case of a person who is an "oleh" (as defined in section 9(16) of the Israeli Income Tax Ordinance), his center of vital interests shall be deemed to be in Israel. 　　(b) If the Contracting State in which he has his center of vital interests cannot be determined, he shall be deemed to be a resident of that Contracting State in which he has a habitual abode; 　　(c) If he has a habitual abode in both Contracting States or in neither of the Contracting States, he shall be deemed to be a resident of the Contracting State of which he is a citizen; and (d) If he is a citizen of both Contracting States or of neither Contracting State, the competent authorities of the Contracting States shall settle the question by mutual agreement. 　　3. A corporation which is both a United States corporation within the meaning of paragraph (1) (f) 　　(i) of Article 2 (General Definitions) and an Israeli corporation within the meaning of paragraph (1) (f) 　　(ii) of such Article 2 shall be considered to be outside the scope of this Convention except for purposes of Article 27 (Nondiscrimination) and Article 29 (Exchange of Information). ARTICLE 4 Source of Income For purposes of this Convention: 　　1. Dividends shall be treated as income from sources within a Contracting State only if paid by a corporation of that Contracting State. 　　2. Interest shall be treated as income from sources within a Contracting State only if paid by such Contracting State, a political sub-division or a local authority thereof, or by a resident of that Contracting State. Notwithstanding the preceding sentence, if such interest is paid on an indebtedness incurred in connection with a permanent establishment which bears such interest, then such interest shall be deemed to be from sources within the State (whether or not a Contracting State) in which the permanent establishment is situated. 　　3. Royalties described in paragraph (2) of Article 14 (Royalties) for the use of, or the right to use, property or rights described in such paragraph shall be treated as income from sources within a Contracting State only to the extent that such royalties are for the use of, or the right to use, such property or rights within that Contracting State. 　　4. Income and gains (including royalties) to which Article 7 (Income from Real Property) applies shall be treated as income from sources within a Contracting State only if the real property (or, in the case of property referred to in paragraph (3) of such Article 7, the underlying real property) is situated in that Contracting State. 　　5. Income from the rental of tangible personal (movable) property shall be treated as income from sources within a Contracting State only to the extent that such income is for the use of such property in that Contracting State. 　　6. Income from the purchase and sale, exchange, or other disposition of intangible or tangible personal property (other than gains described in paragraph (2) of Article 14 (Royalties)) shall be treated as income from sources within a Contracting State only if such sale, exchange, or other disposition is within that Contracting State. Notwithstanding the preceding sentence, gains from the sale, exchange, or other disposition of stock to which paragraph (1) (e) of Article 15 (Capital Gains) applies shall be treated as income from sources within Israel. 　　7. Income received by an individual for his performance of labor or personal services, whether as an employee or in an independent capacity, shall be treated as income from sources within a Contracting State only to the extent that such services are performed in that Contracting State. Income from personal services performed aboard ships or aircraft operated by a resident of one of the Contracting States in international traffic shall be treated as income from sources within that Contracting State if rendered by a member of the regular complement of the ship or aircraft. Notwithstanding the preceding provisions of this paragraph, remuneration described in Article 22 (Governmental Functions) and payments described in Article 21 (Social Security Payments) paid from the public funds of a Contracting State or a political subdivision or local authority thereof shall be treated as income from sources within that Contracting State only. 　　8. Notwithstanding paragraphs (1) through (6), industrial or commercial profits which are attributable to a permanent establishment which the recipient, a resident of one of the Contracting States, has in the other Contracting State, shall be treated as income from sources within that other Contracting State. Industrial or commercial profits attributable to such permanent establishment include any item of income described in paragraphs (1) through (6) to the extent provided in paragraph (6) of Article 8 (Business Profits). 　　9. The source of any item of income to which paragraphs (1) through (8) are not applicable shall be determined by each of the Contracting States in accordance with its own law. Notwithstanding the preceding sentence, if the source of any item of income under the laws of one Contracting State is different from the source of such item of income under the laws of the other Contracting State or if the source of such income is not readily determinable under the laws of one of the Contracting States, the competent authorities of the Contracting States may, in order to prevent double taxation or further any other purpose of this Convention, establish a common source of the item of income for purposes of this Convention, ARTICLE 5 Permanent Establishment 　　1. For the purpose of this Convention, the term "permanent establishment" means a fixed place of business through which a resident of one of the Contracting States engages in industrial or commercial activity. 　　2. The term "fixed place of business" includes but is not limited to: 　　(a) A branch; 　　(b) An office; 　　(c) A factory; 　　(d) A warehouse; 　　(e) A workshop; 　　(f) A farm or plantation; 　　(g) A store or other sales outlet; 　　(h) A mine, quarry, or other place of extraction of natural resources; 　　(i) A building site, or construction or assembly project, or supervision activity connected therewith and conducted within the Contracting State where such site or project is located, where such site, project, or activity continues for a period of more than 6 months; and 　　(j) The maintenance of substantial equipment or machinery within a Contracting State for a period of more than 6 months. 　　3. Notwithstanding paragraphs (1) and (2), a permanent establishment shall not include a fixed place of business used only for one or more of the following: 　　(a) The use of facilities for the purpose of storage, display, or delivery of goods or merchandise belonging to the resident; 　　(b) The maintenance of a stock of goods or merchandise belonging to the resident for the purpose of storage, display, or delivery (other than goods or merchandise held for sale by such resident in a store or other sales outlet); 　　(c) The maintenance of a stock of goods or merchandise belonging to the resident for the purpose of processing by another person; 　　(d) The maintenance of a fixed place of business for the purpose of purchasing goods or merchandise, or for collecting information for the resident; 　　(e) The maintenance of a fixed place of business for the purpose of advertising, for the supply of information, for scientific research, or for similar activities which have a preparatory or auxiliary character, for the resident; 　　(f) A building site, or construction or assembly project, or supervision activity connected therewith, where such site, project, or activity continues for a period of not more than 6 months, or 　　(g) The maintenance of substantial equipment or machinery within a Contracting State for a period of not more than 6 months. 　　4. Even if a resident of one of the Contracting States does not have a permanent establishment in the other Contracting State under paragraphs (1), (2), and (3), nevertheless, such resident shall be deemed to have a permanent establishment in the other Contracting State if such resident sells in that Contracting State goods or merchandise which either- 　　(i) were subjected to substantial processing in that Contracting State (whether or not purchased in that Contracting State), or 　　(ii) were purchased in that Contracting State and not subjected to substantial processing outside that Contracting State. 　　5. A person acting in one of the Contracting States on behalf of a resident of the other Contracting State, other than an agent of an independent status to whom paragraph (6) applies, shall be deemed to constitute a permanent establishment in the first-mentioned Contracting State if such a person has, and habitually exercises in the first-mentioned Contracting State, an authority to conclude contracts in the name of that resident, unless the exercise of such authority is limited to the purchase of goods or merchandise for that resident. 　　6. A resident of one of the Contracting States shall not be deemed to have a permanent establishment in the other Contracting State merely because such resident engages in industrial or commercial activity in that other Contracting State through a broker, general commission agent, or any other agent of an independent status, where such broker or agent is acting in the ordinary course of his business. 　　7. A resident of one of the Contracting States shall not be deemed to have a permanent establishment in the other Contracting State merely because such resident sells at the termination of a trade fair or convention in such other Contracting State goods or merchandise which such resident displayed at such trade fair or convention. 　　8. In determining whether a resident of one Contracting State has a permanent establishment in the other Contracting State there shall not be taken into account the fact that such resident may be related to either a resident of the other Contracting State or to any other person who engages in business in that other Contracting State. 　　9. The principles set forth in paragraphs (1) through (8) shall be applied in determining for purposes of this Convention whether there is a permanent establishment in a State other than one of the Contracting States or whether a person other than a resident of one of the Contracting States has a permanent establishment in one of the Contracting States. ARTICLE 6 General Rules of Taxation 　　1. A resident of one of the Contracting States may be taxed by the other Contracting State on any income from sources within that other Contracting State and only on such income, subject to any limitations set forth in this Convention. For this purpose, the rules set forth in Article 4 (Source of Income) shall be applied to determine the source of income. 　　2. The provisions of this Convention shall not be construed to restrict in any manner any exclusion, exemption, deduction, credit, or other allowance now or hereafter accorded-- 　　(a) By the laws of one of the Contracting States in the determination of the tax imposed by that Contracting State, or 　　(b) By any other agreement between the Contracting States. 　　3. Notwithstanding any provisions of this Convention except paragraph (4), a Contracting State may tax its residents (as determined under Article 3 (Fiscal Residence) and its citizens as if this Convention had not come into effect. 　　4. The provisions of paragraph (3) shall not affect: 　　(a) The benefits conferred by a Contracting State under Articles 10 (Grants), 21 (Social Security Payments), 26 (Relief from Double Taxation), 27 (Nondiscrimination) , and 28 (Mutual Agreement Procedure); and 　　(b) The benefits conferred by a Contracting State under Articles 22 (Governmental Functions), 23 (Teachers), 24 (Students and Trainees), and 30 (Diplomatic and Consular Officers) upon individuals who are neither citizens of, nor have immigrant status in, that Contracting State. 　　5. The United States may impose its personal holding company tax and its accumulated earnings tax notwithstanding any provision tax of this Convention. However, an Israeli corporation shall be exempt from the United States personal holding company tax in any taxable year unless any resident or citizen of the United States owns, directly or indirectly, within the meaning of section 544 of the Internal Revenue Code, 10 percent or more in value of the outstanding stock of the corporation at any time during the taxable year. An Israeli corporation shall be exempt from the United States accumulated earnings tax in any taxable year unless such corporation is engaged in trade or business in the United States through a permanent establishment at any time during such year and at least 25 percent of the voting stock of such corporation is owned by citizens or residents of the United States. 　　6. The competent authorities of the two Contracting States may each prescribe regulations necessary to carry out the provisions of this Convention. ARTICLE 7 Income from Real Property 　　1. Income from real property, including royalties and other payments in respect of the exploitation of natural resources and gains derived from the sale, exchange, or other disposition of such property or of the right giving rise to such royalties or other payments, may be taxed by the Contracting State in which such real property or natural resources are situated. For purposes of this Convention, interest or indebtedness secured by real property or secured by a right giving rise to royalties or other payments in respect of the exploitation of natural resources shall not be regarded as income from real property. 　　2. Paragraph (1) shall apply to income derived from the usufruct, direct use, letting, or use in any other form of real property. 　　3. Gains from the alienation of shares of a real estate association (as defined in the Israeli Land Appreciation Tax Law) may be taxed by Israel. ARTICLE 8 Business Profits 　　1. Industrial or commercial profits of a resident of one of the Contracting States shall he exempt from tax by the other Contracting State unless the resident has a permanent establishment in that other Contracting State. If the resident has a permanent establishment in that other Contracting State, tax may be imposed by that other Contracting State on the industrial or commercial profits of the resident but only on so much of them as are attributable to the permanent establishment. 　　2. Where a resident of one of the Contracting States has a permanent establishment in the other Contracting State, there shall in each Contracting State be attributed to the permanent establishment the industrial or commercial profits which would reasonably be expected to have been derived by it if it were an independent entity engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the resident of which it is a permanent establishment. 　　3. In the determination of the industrial or commercial profits of a permanent establishment, there shall be allowed as deductions expenses which are reasonably connected with such profits, including executive and general administrative expenses, whether incurred in the Contracting State in which the permanent establishment is situated or elsewhere. 　　4. No profits shall be attributed to a permanent establishment of a resident of one of the Contracting States in the other Contracting State merely by reason of the purchase of goods or merchandise by that permanent establishment, or by the resident of which it is a permanent establishment, for the account of that resident. 　　5. For purposes of this Convention, the term "industrial or commercial profits" includes but is not limited to, income derived from manufacturing, mercantile, banking, insurance, agricultural, fishing or mining activities, the operation of ships or aircraft, the furnishing of services, the rental of tangible personal (movable) property, but not the rental or licensing of motion picture films or films or tapes used for radio or television broadcasting. Such term does not include the performance of personal services by an individual either as an employee or in an independent capacity. 　　6. For purposes of paragraph (1), industrial or commercial profits which are attributable to a permanent establishment include income from dividends, interest, royalties described in paragraph (2) of Article 14 (Royalties), and capital gains and income derived from property and natural resources, but only if such income is effectively connected with the permanent establishment. To determine whether income is effectively connected with a permanent establishment, the factors taken into account shall include whether the rights or property giving rise to such income are used in or held for use in carrying on an activity giving rise to industrial or commercial profits through such permanent establishment and whether the activities carried on through such permanent establishment were a material factor in the realization of such income. For this purpose, due regard shall be given to whether or not such property or rights or such income were accounted for through such permanent establishment. 　　7. Where industrial or commercial profits include items of income which are dealt with separately in other articles of this Convention, the provisions of those articles shall, except as otherwise provided therein, supersede the provisions of this Article.