ARTICLE VIII 　　1. Paragraph (2) of Article 13 (Interest) of the Convention, shall be renumbered as subparagraph (a) of paragraph (2), and the following subparagraph shall be inserted: 　　"(b) A resident of a Contracting State may elect, in lieu of the tax that would be imposed under subparagraph (a), to be taxed on its interest income as if that income were industrial and commercial profits and were taxable under Article 8 (Business Profits). The competent authorities of each Contracting State may adopt reasonable rules for the determination and reporting of taxable income. Each competent authority may also adopt procedures to ensure that a person deriving interest income provides such books and records as are necessary to determine the proper amount of the tax." 　　2. A new paragraph (8) shall be added to Article 13 (Interest) of the Convention as follows: 　　"(8) The provisions of paragraphs (2) and (3) shall not apply to an excess inclusion with respect to a residual interest in a real estate mortgage investment conduit." ARTICLE IX The following new Article shall be added as Article 14-A (Branch Tax) of the Convention: "ARTICLE 14-A Branch Tax 　　(1) A corporation which is a resident of a Contracting State may be subject in the other Contracting State to a tax in addition to the tax allowable under the other provisions of this Convention. 　　(2) (a) In the case of the United States, such tax may be imposed only on: 　　(i) the "dividend equivalent amount" of the profits of the corporation which are effectively connected (or treated as effectively connected) with the conduct of a trade or business in the United States and which are either attributable to a permanent establishment in the United States or are subject to tax in the United States under Article 7 (Income from Real Property) or Article 15 (Capital Gains) of this Convention; and 　　(ii) the excess, if any, of interest deductible in the United States in computing the profits of the corporation that are subject to tax in the United States and are either attributable to a permanent establishment in the United States or are subject to tax in the United States under Article 7 (Income from Real Property) or Article 15 (Capital Gains) of this Convention, over the interest paid by or from the permanent establishment or trade or business in the United States. 　　(b) In the case of Israel such tax nay be imposed only on amounts sufficient to provide that a branch in Israel of a United States corporation (or a corporation of the United States otherwise taxable on net income in Israel) is taxed in a manner comparable to a similarly situated Israeli corporation and its United States shareholder. 　　(3) (a) The taxes described in subparagraph (a) (i) of paragraph (2) shall not be imposed at a rate in excess of 12.5 percent. 　　(b) The taxes described in subparagraph (a) (ii) of paragraph (2) shall not be imposed at a rate in excess of 5 percent. 　　(c) The taxes described in subparagraph (b) of paragraph (2) shall not be imposed at rates in excess of the comparable rates imposed by the United States under subparagraphs (a) and (b) of this paragraph." ARTICLE X 　　1. Subparagraph (a) of paragraph (1) of Article 15 (Capital Gains) of the Convention shall be deleted and replaced by the following: 　　"(a) The gain is subject to tax by that other Contracting State under the provisions of Article 7 (Income from Real Property),". 　　2. Subparagraph (e) of paragraph (1) of Article 15 (Capital Gains). of the Convention shall be deleted and replaced with the following: 　　"(e) The gain is derived by a resident of a Contracting State from the sale, exchange or other disposition of stock in a corporation of the other Contracting State, but only if the resident of the first-mentioned Contracting State owned either directly or indirectly at any time within the 12- month period preceding such sale, exchange or other disposition, stock possessing 10 percent or more of the voting power of the corporation. 　　3. The existing paragraph (2) of Article 15 (Capital Gains) of the Convention shall be renumbered as paragraph (3) and a new paragraph (2) shall be added as follows: "(2) For the purpose of subparagraph (e) of paragraph (1), if-- 　　(a) The transferor and the transferee are companies resident in the same Contracting State; 　　(b) The transferor or the transferee owns, directly or indirectly, 80 percent or more of the voting rights and value of the other, or a company resident in the same Contracting State owns, directly or indirectly (through companies resident in the same Contracting State), 80 percent or more of the voting rights and value of both; and 　　(c) The transferee's basis in the asset (for purposes of determining gain on any subsequent disposition in the State in which it is resident) is determined, in whole or in part, by reference to the transferor's basis, then the amount of the gain taxable in that other Contracting State shall be limited to the value of cash or other property received by the transferor (not including stock in the transferee or another company resident in the first-mentioned Contracting State that owns directly or indirectly 80 percent or more of the voting rights and value of the transferee). This limitation on the amount of gain that may be taxed shall not apply if the Contracting State in which the transferor is resident subjects to tax a greater amount of gain; in such a case, the other Contracting State may tax the gain in accordance with its domestic law (applied consistently with this Convention). In all events, the other Contracting State may tax the gain in accordance with its domestic law (applied consistently with this Convention) at the time of any sale, exchange or other disposition not subject to the limitations of this paragraph (2)". ARTICLE XI 　　The text of Article 22 (Governmental Functions) of the Convention shall be designated as paragraph (1) of Article 22 and new paragraphs (2) and (3) shall be added as follows: 　　"(2) For the purposes of this Article, the term public funds of one of the Contracting States shall be deemed to mean the funds of: 　　(a) a Contracting State or a political subdivision or local authority thereof, 　　(b) a corporation wholly owned by a Contracting State or a political subdivision or local authority thereof, which performs functions of a governmental nature, or 　　(c) any other body which is treated for tax purposes in the same manner as the Contracting State, a political subdivision or local authority thereof, pursuant to the laws of that State, which performs functions of a governmental nature. 　　(3) For the purposes of this Article, employment by a Contracting State shall be deemed to include employment by any entity enumerated in subparagraphs (a), (b) or (c) of paragraph (2)." ARTICLE XII 　　Article 25 (Investment or Holding Companies) of the Convention shall be deleted and replaced with the following: "ARTICLE 25 Limitation on Benefits 　　1. A person that is a resident of a Contracting State and derives income from sources within the other Contracting State shall not be entitled, in that other Contracting State, to the benefits of this Convention if: 　　(a) 50 percent or more of the beneficial interest in such person (or in the case of a company, 50 percent or more of the voting power or value of the company's stock) is owned, directly or indirectly, by any combination of one or more individuals who are not residents of a Contracting State and who are not citizens of a Contracting State taxable in that Contracting State on income derived outside that Contracting State; or 　　(b) 50 percent or more of the gross income of such person is used in substantial part, directly or indirectly, to meet liabilities (including liabilities for interest or royalties) to persons who are residents of a State other than a Contracting State, and who are not citizens of a Contracting State taxable in that Contracting State on income derived outside that Contracting State. 　　2. If a company is a resident of a Contracting State and there is outstanding a class of stock of that company or of another company that controls that company, and that class of stock entitles its holders, by a dividend distribution or by any other means, to a disproportionately high share of the income derived in the other Contracting State from certain assets that are located in that other Contracting State or from activities that are performed there, and 50 percent or more of the shares of that class of stock are owned, directly or indirectly, by any individual or combination of individuals who are neither residents of a Contracting State nor citizens of a Contracting State who are subject to tax in that Contracting State on income derived outside that Contracting State, then the benefits of this Convention will not apply with respect to any income that is attributable to those assets or activities. 　　3. The provisions of paragraphs (1) and (2) shall not apply if the person deriving the income is one of the following: 　　(a) an individual; 　　(b) an entity described in subparagraphs (a), (b) or (c) of paragraph (2) of Article 22 (Governmental Functions); 　　(c) engaged in the active conduct of a trade or business in the first-mentioned Contracting State (other than the business of making or managing investments, unless these activities are banking or insurance activities carried on by a bank or insurance company), and the income derived from the other Contracting State is derived in connection with, or is incidental to, that trade or business; 　　(d) a company in whose principal class of shares there is substantial and regular trading on a recognized stock exchange; or 　　(e) an entity that is a not-for-profit organization and that, by virtue of that status, is generally exempt from income taxation in its Contracting State of residence, provided that more than half of the beneficiaries, members or participants, if any, in such organization are persons that are entitled, under this Article, to the benefits of this Convention. 　　4. (a) A person that is not entitled to the benefits of the Convention pursuant to the preceding provisions of this Article may, nevertheless, be granted the benefits of the Convention if the competent authority of the State in which the income in question arises so determines. 　　(b) If one of the Contracting States proposes to deny benefits to a resident of the other Contracting State by reason of this Article, the competent authorities of the Contracting States shall, upon request of a competent authority, consult each other. 　　(c) The competent authorities of the Contracting States shall consult together with a view to developing a commonly agreed application of the provisions of this Article. 　　5. For purposes of subparagraph (d) of paragraph (2), the term "recognized stock exchange" means: 　　(a) the NASDAQ System owned by the National Association of Securities Dealers, Inc. and any stock exchange registered with the Securities and Exchange Commission as a national securities exchange for purposes of the Securities Exchange Act of 1934; 　　(b) the Tel Aviv Stock Exchange and any other Israeli exchange that may be approved by the Minister of Finance; and 　　(c) any other stock exchange agreed upon by the competent authorities of the Contracting States." ARTICLE XIII 　　1. Paragraph (2) of Article 26 (Relief from Double Taxation) of the Convention shall be deleted and replaced by the following: 　　"(2) Where a United States citizen is a resident of Israel-- 　　(a) with respect to items of income that are exempt from United States tax, or that are subject to a reduced rate of United States tax when derived by a resident of Israel who is not a United States citizen, Israel shall allow as a credit against Israeli tax, subject to the provisions of Israeli tax law regarding credit for foreign tax, only the tax paid, if any, that the United States may impose under the provisions of this Convention, other than taxes that may be imposed solely by reason of citizenship under paragraph (3) of Article 6 (General Rules of Taxation); 　　(b) for purposes of computing United States tax, the United States shall allow as a credit against United States tax the income tax paid to Israel after the credit referred to in subparagraph (a); the credit so allowed shall not reduce that portion of the United States tax that is creditable against Israeli tax in accordance with subparagraph (a); 　　(c) for the exclusive purpose of relieving double taxation in the United States under subparagraph (b), items of income referred to in subparagraph (a) shall be deemed to arise in Israel to the extent necessary to avoid double taxation of such income under subparagraph (b)." 　　2. In paragraph (3) of Article 26 (Relief from Double Taxation) of the Convention, the phrase "Israel shall allow" shall be deleted and replaced by the following: " in accordance with the provisions and subject to the limitations of the law of Israel (as it may be amended from time to time without changing the general principle hereof), Israel shall allow." 　　3. A new paragraph (4) shall be added to Article 26 (Relief from Double Taxation) of the Convention as follows: 　　"(4) Notwithstanding any other provision of this Convention, the source rule for income derived from the sale, exchange or other disposition of stock or of interests in an intangible set forth in Article 4 (Source of Income) shall apply for purposes of this Article. The other source rules set forth in Article 4 also shall apply for purposes of this Article to the extent not prohibited by the domestic law of the Contracting State that is providing relief from double taxation." ARTICLE XIV 　　1. Paragraph (1) of Article 27 (Nondiscrimination) of the Convention shall be deleted and replaced by the following: 　　"(1) Citizens of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which citizens of that other State in the same circumstances are or may be subjected. This provision shall also apply to persons who are not residents of one or both of the Contracting States. However, for the purposes of United States tax, a United States citizen who is not a resident of the United States and an Israeli citizen who is not a resident of the United States are not in the same circumstances." 　　2. A new paragraph (4) shall be added to Article 27 (Nondiscrimination) of the Convention as follows: 　　"(4) Nothing in this Article shall be construed as preventing either Contracting State from imposing the tax described in Article 14A (Branch Tax)." ARTICLE XV 　　Paragraph (1) of Article 29 (Exchange of Information) of the Convention shall be deleted and replaced by the following: 　　"(1) The competent authorities of the Contracting States shall exchange such information as is pertinent to carrying out the provisions of this Convention or preventing fraud or fiscal evasion in relation to the taxes which are the subject of this Convention. Any information so exchanged shall be treated as secret and shall not be disclosed to any persons or authorities other than those concerned with the assessment (including judicial determination), collection, or administration of the taxes which are the subject of the Convention." ARTICLE XVI 　　Subparagraph (b) of Article 31 (Entry Into Force) of the Convention shall be deleted and replaced by the following: 　　"(b) As respects other Taxes: 　　(i) to taxable years beginning on or after January 1 of the year in which this Convention enters into force, if the Convention enters into force prior to July 1 of any calendar year; or 　　(ii) to taxable years beginning on or after January 1 of the year following the date on which this Convention enters into force, if the Convention enters into force after June 30 of any calendar year." ARTICLE XVII 　　This protocol shall be ratified and instruments of ratification shall be exchanged as soon as possible. 　　The Protocol shall enter into force 30 days after the date of the exchange of instruments of ratification, and shall have effect in accordance with Article 31 (Entry Into Force) of the Convention. Notwithstanding the second sentence of Article 31, for purposes only of applying Article 26 (Relief from Double Taxation) to years specified in subparagraph (b) of Article 31, the Convention shall be applied as if the penultimate sentence of paragraph (1) of Article 26 had entered into force on May 30, 1980. 　　IN WITNESS WHEREOF, the undersigned, duly authorized thereto by their respective Governments have signed this Protocol. 　　Done at Jerusalem, in duplicate, in the English and Hebrew languages, the two texts having equal authenticity, this 26 day of January 1993. FOR THE GOVERNMENT OF FOR THE GOVERNMENT OF THE UNITED STATES OF AMERICA: THE STATE OF ISRAEL (s) William C. Harrop (s) Shimon Peres