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TMI BlogAgreement between the Government of the Republic of India and the Government of the State of Israel for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxesX X X X Extracts X X X X X X X X Extracts X X X X ..... to in the Union of India. ANNEXURE CONVENTION BETWEEN THE REPUBLIC OF INDIA AND THE STATE OF ISRAEL FOR THE AVOIDANCE OF DOUBLE TAXATION AND FOR THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND ON CAPITAL The Government of the Republic of India 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 and on capital, have agreed as follows : Article 1 Personal scope This Convention shall apply to persons who are residents of one or both of the contracting States. Article 2 Taxes covered 1. This Convention shall apply to taxes on income imposed on behalf of a contracting State or of its political sub-divisions or local authorities and to taxes on capital imposed on behalf of a contracting State, irrespective of the manner in which they are levied. 2. There shall be regarded as taxes on income and on capital all taxes imposed on total income, on total capital, or on elements of income or of capital, including taxes on gains from the alienation of movable or immovable property, taxes on the total amounts of wages or salaries paid by enterpri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise carried on by a resident of the other contracting State; (g) the terms `international traffic' means any transport by a ship or aircraft operated by an enterprise which is a resident of a contracting State, except when the ship or aircraft is operated solely between places in the other contracting State; (h) the term `competent authority' means : (i) in India : the Central Government in the Ministry of Finance (Department of Revenue) or their authorised representative; (ii) in Israel : the Minister of Finance or his authorised representative; (i) the term national means : (i) any individual possessing the nationality of a contracting State; (ii) any legal person, partnership or association deriving its status as such from the laws in force in a contracting State; (j) the term fiscal year means : (i) in the case of India, the twelve-month period beginning on the 1st of April; (ii) in the case of Israel, the twelve-month period beginning on the 1st of January; (k) the term tax means Indian tax or Israeli tax, as the context requires, but shall not include any amount which is payable in respect of any default or omission in relation to the taxes to which this Convention a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here by reason of the provisions of paragraph 1 a person other than an individual is a resident of both contracting States, then it shall be deemed to be a resident of the State in which its place of effective management is situated. If the State in which its place of effective management is situated cannot be determined, then the competent authorities of the contracting States shall settle the question by mutual agreement. ARTICLE 5 PERMANENT ESTABLISHMENT 1. For the purposes of this Convention, the term permanent establishment means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term permanent establishment includes especially : (a) a place of management; (b) a branch; (c) an office; (d) a factory; (e) a workshop; and (f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources. 3. A building site of construction or assembly project or supervisory activities in connection therewith constitute a permanent establishment only if such site, project or activity last more than six months. 4. Notwithstanding the preceding provisions of this article, the term permanent establishment shall be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other. ARTICLE 6 INCOME FROM IMMOVABLE PROPERTY 1. Income derived by a resident of a contracting State from immovable property (including income from agriculture or forestry) situated in the other contracting State may also be taxed in that other State. 2. The term immovable property shall have the meaning which it has under the law of the contracting State in which the property in question in situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources; ships, boats and aircraft shall not be regarded as immovable property. 3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ient reason to the contrary. 7. Where profits include items of income which are dealt with separately in other articles of this Convention, the provisions of those articles shall not be affected by the provisions of this article. ARTICLE 8 SHIPPING AND AIR TRANSPORT 1. Profits from the operation of ships and aircraft in international traffic shall be taxable only in the contracting State of which the enterprise is a resident. 2. The term profits shall include income derived by the enterprise from the rental of ships and aircraft operated in international traffic. Such term shall also include income derived by the enterprise from the use, maintenance or rental of containers operated in international traffic (including trailers, barges and related equipment for the transport of such containers) if such income is incidental to the profits of the enterprise from the operation of ships and aircraft in international traffic. 3. The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency. 4. For the purposes of this article, interest on funds connected with the operation of ships or aircraft in internati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so be taxed in the contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed 10 per cent of the gross amount of the dividends. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. 3. The term dividends as used in this article means income from shares, jouissance shares of jouissance rights, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident. 4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a contracting State, carries on business in the other contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. Penalty charges for late payment shall not be regarded as interest for the purpose of this article. 5. The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the interest, being a resident of a contracting State, carries on business in the other contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or 15, as the case may be, shall apply. 6. Interest shall be deemed to arise in a contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a contracting State or not, has in a contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a resident of that State. Where, however, the person paying the royalties, whether he is a resident of a contracting State or not, has in a contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties was incurred, and such royalties are borne by such permanent establishment of fixed base, then such royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each contracting State, due regard being had to the other provisions of this Convention. ARTICLE 13 FEES FOR TECHNICAL SERVICES 1. Fees for technical services arising in a contracting State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid in the absence of such relationship, the provisions of this article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each contracting State, due regard being had to the other provisions of this Convention. 7. The provisions of paragraphs 1 to 6 of this article shall not apply to payments relating to services mentioned hereinbelow : (i) Services that are ancillary and subsidiary, and inextricably and essentially linked, to a sale of property; (ii) Services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic; (iii) Teaching in or by an educational institution; (iv) Services for the personal use of the individual or individuals making the payments; or (v) Professional services as defined in Article 15. ARTICLE 14 CAPITAL GAINS 1. Gains derived by a resident of a contracting State from the alienation of immovable property referred to in Article 6 and situated in the other contracting State may also be taxed in that other State. 2. Gains from the alienation of mova ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed; in that case, only so much of the income as is derived from his activities performed in that other State may be taxed in that other State. 2. The term professional services includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accounts. ARTICLE 16 DEPENDENT PERSONAL SERVICES 1. Subject to the provisions of Articles 17, 19, 20 and 21, salaries, wages and other similar remuneration derived by a resident of a contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other contracting State. If the employment is so exercised, such remuneration as is derived therefrom may also be taxed in that other State. 2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a contracting State in respect of an employment exercised in the other contracting State shall be taxable only in the first-mentioned State if : (a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taxable only in the other contracting State, if that other person is supported wholly or substantially from the public funds of the first-mentioned contracting State, including any of its political sub-divisions or local authorities. ARTICLE 19 PENSIONS Subject to the provisions of paragraph 2 of Article 20, pensions and other similar remuneration paid to a resident of a contracting State in consideration of past employment shall be taxable only in that State. ARTICLE 20 GOVERNMENT SERVICE 1.(a) Remuneration, other than a pension, paid by a contracting State or a political sub-division or a local authority thereof to an individual in respect of services rendered to that State or sub-division or authority shall be taxable only in the State. (b) However, such remuneration shall be taxable only in the other contracting State if the services are rendered in that State and the individual is a resident of that State who : (i) is a national of that State; or (ii) did not become a resident of that State solely for the purpose of rendering the services. 2.(a) Any pension paid by, or out of funds created by, a contracting State or a political sub-division or a local authority thereof to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st-mentioned Contracting State. ARTICLE 22 OTHER INCOME 1. Items of income of a resident of a contracting State, wherever arising not dealt with in the foregoing articles of this Convention shall be taxable only in that State. 2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the recipient of such income, being a resident of a contracting State carries on business in the other contracting State through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the income is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 15, as the case may be, shall apply. 3. Notwithstanding the provisions of paragraph 1, any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any form or nature whatsoever, may also be taxed in the contracting State where they arise. ARTICLE 23 CAPITAL 1. Capital represented by immovable property referred to in A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resident in the other Contracting State, the first-mentioned Contracting State shall allow credit of 15 per cent of the gross amount of such dividend from the tax payable. 4. Notwithstanding the provisions of paragraphs 1 and 2 of this Article, where a resident of a Contracting State derives income by way of interest from any source in the other Contracting State, the first-mentioned Contracting State shall allow a credit of 10 per cent of the gross amount of such interest from the tax payable. 5. Where in accordance with any provision of the Convention income derived or capital owned by a resident of a contracting State is exempt from tax in that State, such State may nevertheless, in calculating the amount of tax on the remaining income or capital of such resident, take into account the exempted income or capital. ARTICLE 25 NON-DISCRIMINATION 1. Nationals 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 nationals of that other State in the same circumstances are or may be subjected. This provision shall, notw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the contracting State of which he is a resident or, if his case comes under paragraph 1 of Article 25, to that of the contracting State of which he a national. The case must be presented within three years from the first-notification of the action resulting in taxation not in accordance with the provisions of the Convention. 2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other contracting State, with a view to the avoidance of taxation which is not in accordance with the Convention. Any agreement reached shall be implemented notwithstanding any time limits in the domestic law of the Contracting States. 3. The competent authorities of the contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention. They may also consult together for the elimination of double taxation in cases not provided for in the convention. 4. The competent authorities of the contracting States may communicate with each other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , through diplomatic channels, upon the completion of their respective legal procedures to bring this Convention into force. 2. The Convention shall enter into force on the date of the latter of such notifications and its provisions shall have effect : (a) in the Republic of India : (i) in respect of taxes withheld at source on dividends, interest, royalties and fees for technical services, as defined in Articles 10, 11, 12 and 13, respectively, for amounts paid or credited on or after the first day of the month next following that in which the Convention enters into force; (ii) in respect of taxes on income, and taxes on capital, for fiscal years beginning on or after the first day of April, 1994; and (b) in the State of Israel : (i) in respect of taxes withheld and source on dividends, interest, royalties and fees for technical services, as defined in Articles 10, 11, 12 and 13, respectively, for amounts paid or credited on or after the first day of the month next following that in which the Convention enters into force; (ii) in respect of taxes on income, and taxes on capital, for taxable periods beginning on or after the first day of January, 1994. ARTICLE 30 TERMINATION This C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... precluding a contracting State from determining executive and administrative expenses of a head office incurred outside that contracting State according to the provisions of internal laws as they exist at the time of the signing of this Convention. However, should future changes in the domestic law of a contracting State further restrict the deduction of such expenses in any manner, then the two contracting States shall consult each other for purposes of amending this paragraph. 2. The competent authorities of the Contracting States shall initiate the proper procedure to review the provisions of Article 12 and 13 (Royalties and fees for technical services respectively) after a period of five years from the date of entry into force of this Convention, However, if under any convention of Agreement between India and any third State which enters into force after 1-1-1995, India limits its taxation at source or Royalties of Fees for Technical Services or Interest or Dividends to a rate lower or a scope more restricted than the rate of scope provided for in this Convention, the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also appl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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