Avoidance of Double Taxation Treaties – General Overview
- A treaty (commonly referred to as a convention) for the avoidance of double taxation is an agreement between two states, in which taxation provisions are set where incomes are linked to both states. The provisions of a tax treaty usually override both contracting states' domestic laws.
- The main goal of a tax treaty is to prevent a situation in which both states levy taxes on the same income ("double taxation"). Other goals include: improving coordination between states and the collection of taxes, preventing tax avoidance and tax evasion, exchanging information, setting the basis of mutual agreement procedure, setting non-discrimination provisions, opening direct communication channels between the two tax administrations, and decreasing the vagueness, thereby increasing the certainty regarding the other state's domestic law for better mutual investments and trade .
- Overall, Israel has 37 tax treaties in force. Tax Treaties were also signed, but not yet ratified with Ukraine (signed on December 26, 2003) Ethiopia (signed on June 2, 2004) and Luxembourg (signed on December 13, 2004). Tax Treaties were initialed but not yet formally signed with Portugal (signed by initials on December 10, 2004), Lithuania (signed by initials on September 16, 2005), Slovenia (signed by initials on December 13, 2005) and Latvia (signed by initials on January 18, 2006).
- Most of Israel's tax treaties are based on the OECD Model Tax Convention on Income and on Capital. Some of the treaties also include provisions from the UN Model Double Taxation Convention between Developed and Developing countries.
- After signature, each state needs to ratify the tax treaty (In Israel – by the parliament and afterwards by the government).
- After concluding ratification procedures, the Israeli Minister of Finance issues regulations (according to article 196 of the Income Tax Ordinance) which give effect to the treaty notwithstanding any law.
Ofir Levy, CPA, Adv.
Head of International Taxation Department
State Revenue Administration
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