Convention between the Government of the Russian Federation and the Government of the State of Israel for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income

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CONVENTION BETWEEN
THE GOVERNMENT OF THE STATE OF ISRAEL AND
THE GOVERNMENT OF THE RUSSIAN FEDERATION
FOR THE AVOIDANCE OF DOUBLE TAXATION AND
FOR THE PREVENTION OF FISCAL EVASION
WITH RESPECT TO TAXES ON INCOME

 

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 subdivisions or local authorities irrespective of the manner in which they are levied.

2.There shall be regarded as taxes on income all taxes imposed on total income or on elements of income, including taxes on gains from the alienation of movable or immovable property, taxes on the total amounts of wages or salaries paid by enterprises, as well as taxes on capital appreciation.

3.The existing taxes to which the Convention shall apply are in particular:


(a)

in the case of Israel:


(i)

income tax,

(ii)

company tax,

(iii)

capital gains tax, and

(iv)

land appreciation tax

(hereinafter referred to as "Israeli tax");

(b)

in the case of Russia -- the taxes on income and profits imposed in accordance with the following laws of the Russian Federation


(i)

"On taxes on profits of enterprises and organisations",

(ii)

"On taxation of income of banks",

(iii)

"On taxation on income of insurance activities", and

(iv)

"On the income tax on individuals"

(hereinafter referred to as "Russian tax").

4.The Convention shall apply also to any identical or substantially similar taxes which are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any substantial changes which have been made in their respective taxation laws.

Article 3

General definitions

1.For the purposes of this Convention, unless the context otherwise requires:


(a)

the term "Israel" means the State of Israel, and when used in a geographic sense includes the territory in which the Government of Israel may enforce the collection of taxes as well as its territorial sea, continental shelf and economic zone, according to international law;

(b)

the term "the Russian Federation" (Russia), when used in a geographical sense, means its territory, including its territorial waters as well as economic zone and continental shelf where this state exercises sovereign rights or rights and jurisdiction in conformity with international law and where its tax laws are effective;

(c)

the terms "a Contracting State" and "the other Contracting State" mean Israel or Russia, as the context requires;

(d)

the term "person" includes an individual, a company and any other body of persons;

(e)

the term "company" means any body corporate or any entity which is treated as a body corporate for tax purposes;

(f)

the terms "enterprise of a Contracting State" and "enterprise of the other Contracting State" mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

(g)

the term "national" means any individual possessing the citizenship of a Contracting State;

(h)

the term "international traffic" means any transport by a ship, road-transport vehicle or aircraft operated by a resident of a Contracting State, except when the ship, road-transport vehicle or aircraft is operated solely between places in a single Contracting State;

(i)

the term "competent authority" means:


(i)

in the case of Israel -- the Minister of Finance or his authorised representative;

(ii)

in the case of the Russian Federation -- the Ministry of Finance or its authorised representative.


2.

(a) As regards the application of the Convention by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the laws of that State concerning the taxes to which the Convention applies.

(b)

If as a result of the application of subparagraph (a), a person is or would be subjected to double taxation, the competent authorities of the Contracting States may in accordance with the provisions of Article 25 adopt a common meaning of terms defined differently by their respective laws.

(c)

If, in a particular case, the application of this Convention fails to prevent double taxation because the Contracting States have differing rules with respect to the source of the category of income involved, the competent authorities of the Contracting States may in accordance with the provisions of Article 25 reach agreement as to the source of income in the particular case so as to eliminate double taxation.

Article 4

Resident

1.For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation or place of registration as a legal entity or any other criterion of a similar nature. However, a person will not be deemed to be a resident of a Contracting State by virtue only of his being liable to tax in that State in respect only of income from sources in that State.

2.Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:


(a)

he shall be deemed to be a resident of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests);

(b)

if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode;

(c)

if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national;

(d)

if each State considers him to be its national or if he is a national of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

3.Where 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 and central management is situated. If the State in which its place of effective and central management [is situated] cannot be determined, 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, construction, installation or assembly project, or supervisory or consulting activities connected therewith, constitutes a permanent establishment only if it lasts more than 12 months.

4.Notwithstanding the preceding provisions of this Article, the term "permanent establishment" shall be deemed not to include:


(a)

the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

(b)

the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

(c)

the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

(d)

the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;

(e)

the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;

(f)

the maintenance of a fixed place of business solely for any combination of the activities mentioned in subparagraphs (a) to (e).

5.Notwithstanding the provisions of paragraphs 1 and 2, where a person -- other than an agent of an independent status to whom paragraph 6 applies -- is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts in the name of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

6.An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.

7.The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or 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 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 is 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 property. The provisions of paragraph 1 shall likewise apply to profits from the alienation of immovable property.

4.The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

Article 7

Business profits

1.The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

2.Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.

3.In determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere.

4.Insofar as it has been customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary; the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles contained in this Article.

5.No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

6.For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

7.Where profits include items of income which are dealt with separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisions of this Article.

Article 8

Income (profits) from international transport

1.Income (profits) derived by a resident of a Contracting State from the operation or rental of ships, road-transport vehicles or aircraft in international traffic shall be taxable only in that State. The term "income (profits)" as used herein shall include income (profits) from the rental, use or maintenance of containers (including trailers, barges and related equipment for the transport of containers) used for the transport in international traffic of goods or merchandise if such income (profits) is incidental to the international transport income (profits).

2.The provisions of paragraph 1 shall also apply to income (profits) from the participation in a pool, a joint business or an international operating agency.

Article 9

Adjustments to profits

1.Where:


(a)

an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

(b)

the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

2.Where a redetermination has been made by one Contracting State to the income of one of its residents in accordance with paragraph 1, then the other Contracting State shall, if it agrees with such redetermination and if necessary to prevent double taxation, make a corresponding adjustment to the income of a person in such other Contracting State related to such resident, within the meaning of paragraph 1. In the event the other Contracting State disagrees with such redetermination, the two Contracting States shall endeavor to reach agreement in accordance with Article 25.

Article 10

Dividends

1.Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

2.However, such dividends may also 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 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 situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be shall apply.

Article 11

Interest

1.Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

2.However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

3.Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State and derived by the Government of the other Contracting State, a local authority thereof, the Central Bank of that other Contracting State or by any resident of the other Contracting State with respect to debt-claims guaranteed, insured or indirectly financed by the Government of that other Contracting State, a local authority thereof or the Central Bank of that other Contracting State shall be exempt from tax in the first-mentioned Contracting State.

4.The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities 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 and 2 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 Article 14, 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 subdivision, 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 the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

7.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 interest, having regard to the debt-claim for which it is 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 12

Royalties

1.Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

2.However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties.

3.The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematograph films, video recordings, and films or tapes for radio or television broadcasting), any patent, trade mark, design or model, plan, software, secret formula or process or for information concerning industrial, commercial or scientific experience.

4.The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, 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 royalties are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

5.Royalties shall be deemed to arise in a Contracting State where the payer is that State itself, a political subdivision, a local authority 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 obligation to pay the royalties was incurred, and the royalties are borne by that permanent establishment or fixed base, then the royalties shall be deemed to arise in the Contracting 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

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 be taxed in that other State.

2.Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other Contracting State.


3.

(a) Gains derived by a resident of Russia from the sale, exchange or other disposition, directly or indirectly, of shares or similar rights in a company which is a resident of Israel may be taxed in Israel, but only if the resident of Russia owned either directly or indirectly at any time within the five-year period preceding such sale, exchange or other disposition, shares giving the right to 10 per cent or more of the voting power in the company. For the purposes of this subparagraph indirect ownership shall be deemed to include, but not be limited to, ownership by a related person.

(b)

Gains from the alienation of shares or similar rights being shares in a company, 50 per cent or more of the assets of which consist, directly or indirectly, of immovable property situated in a Contracting State, may be taxed in that State. Gains from the alienation of an interest in a partnership, trust or estate, the property of which consists, directly or indirectly, principally of immovable property situated in a Contracting State, may be taxed in that State. For the purposes of this subparagraph indirect ownership shall be deemed to include, but not be limited to, ownership by a related person.

(c)

Gains from the alienation of property and rights as defined in Article 12 derived by a resident of a Contracting State arising in the other Contracting State may be taxed in that other State, but the tax imposed thereon shall not exceed 10 per cent of the gross amount of the gain.

4.Gains from the alienation of any property other than that referred to in paragraphs 1, 2 and 3 shall be taxable only in the Contracting State of which the alienator is a resident.

Article 14

Income from independent personal services

1.Income derived by a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that State unless he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities. If he has such a fixed base, the income may be taxed in the other State but only so much of it as is attributable to that fixed base.

2.The term "professional services" includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.

Article 15

Income from employment

1.Subject to the provisions of Articles 16, 18, 19 and 20, 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 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 the calendar year concerned with respect to presence in Russia, and 183 days in any 12 month period commencing or ending in the fiscal year concerned with respect to presence in Israel, and

(b)

the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and

(c)

the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.

3.Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship, aircraft or road-transport vehicle operated in international traffic may be taxed in the Contracting State of which the employer is a resident.

4.Notwithstanding the provisions of paragraphs 1 and 2, 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 the employment is exercised with respect to a building site, a construction, assembly or installation project or supervisory or consulting activities connected therewith, and the activities connected with such site or project are deemed not to be carried on through a permanent establishment according to the provisions of paragraph 3 of Article 5 of this Convention.

5.Notwithstanding the provisions of paragraphs 1 and 2 of this Article, employment income of a journalist or correspondent paid from sources in the Contracting State of which he is a resident in respect of services rendered in the other Contracting State shall not be taxable in that other State for a period of two years from the date of his arrival there.

Article 16

Directors' fees

Directors' fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors or any similar organ of a company which is a resident of the other Contracting State may be taxed in that other State.

Article 17

Income of entertainers and athletes

1.Notwithstanding the provisions of Articles 14 and 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as an athlete, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State.

2.Where income in respect of personal activities exercised by an entertainer or an athlete in his capacity as such accrues not to the entertainer or athlete himself but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or athlete are exercised.

Article 18

Pensions

Subject to the provisions of paragraph 2 of Article 19, pensions and other similar remuneration paid to a resident of a Contracting State in consideration of past employment or otherwise may be taxed only in that State.

Article 19

Income from government service


1.

(a) Remuneration, other than a pension, paid by a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that 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 subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

(b)

However, such pension shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that State.

3.The provisions of Articles 15, 16 and 18 shall apply to remuneration and pensions in respect of services rendered in connection with a business carried on by a Contracting State or a political subdivision or a local authority thereof.

Article 20

Income of teachers, researchers, students and business apprentices

1.An individual who is, or immediately before visiting a Contracting State was a resident of the other Contracting State and is temporarily present in the first-mentioned State for the primary purpose of teaching or conducting research at a university, school or other licensed educational institution in the first-mentioned State shall be exempt from tax in the first-mentioned State, for a period not exceeding two years from the date of his first arrival in the first-mentioned State, in respect of remuneration for such teaching or research.

2.Payments which a student or a business apprentice who is or was immediately before visiting a Contracting State a resident of the other Contracting State and who is present in the first-mentioned Contracting State solely for the purpose of his education or training receives for the purpose of his maintenance, education or training shall not be taxed in that State, provided that such payments arise from sources outside that State.

Article 21

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 14, as the case may be, shall apply.

Article 22

Method of elimination of double taxation

Where a resident of a Contracting State derives income from the other Contracting State, which in accordance with the provisions of this Convention, may be taxed in that other State, then the amount of tax paid in that other State shall be allowed as a credit against the tax payable in the first-mentioned Contracting State. The amount of the credit, however, shall not exceed the amount of tax levied on such income by the first-mentioned Contracting State in accordance with its laws and regulations.

Article 23

Non-discrimination

1.Nationals of a Contracting State, legal persons and partnerships registered under the laws 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, legal persons and partnerships registered under the laws of that other Contracting State, as the case may be, in the same circumstances are or may be subjected. This provision shall, notwithstanding the provisions of Article 1, also apply to persons who are not residents of one or both of the Contracting States.

2.A Contracting State may not exercise in respect of a resident of the other Contracting State a higher or more burdensome taxation than taxation which that State would exercise in respect of a resident of a third State with which it did not conclude a Convention for the avoidance of double taxation.

3.The taxation of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favorably levied in that other State than the taxation levied on enterprises of that other State or of a third State carrying on the same activities.

4.Except where the provisions of paragraph 1 of Article 9, paragraph 6 of Article 11, or paragraph 6 of Article 12 apply, interest, royalties and other disbursements paid by an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the taxable profits of such enterprise, be deductible under the same conditions as if they had been paid to a resident of the first-mentioned State.

5.An enterprise of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of the first-mentioned State are or may be subjected.

6.The provisions of this Article shall not be construed as prohibiting the imposition of a branch tax by a Contracting State.

7.The provisions of this Article shall, notwithstanding the provisions of Article 2, apply to taxes of every kind and description except indirect taxes.

Article 24

Limitation of benefits

The competent authority of a Contracting State may, after consultation with the competent authority of the other Contracting State, deny the benefits of this Convention to any person, or with respect to any transaction, if in its opinion the granting of those benefits would constitute an abuse of the Convention according to its purposes.

Article 25

Mutual agreement procedure

1.Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provision of this Convention, he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of the Contracting State of which he is a resident or, if his case comes under paragraph 1 of Article 23, to that of a Contracting State of which he is a national and in the case of a legal person or partnership, to that of the Contracting State under whose laws it was registered. 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 directly for the purpose of reaching an agreement in the sense of the preceding paragraphs. When it seems advisable in order to reach agreement to have an oral exchange of opinions, such exchange may take place through a commission consisting of representatives of the competent authorities of the Contracting States.

Article 26

Exchange of information

1.The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes covered by the Convention insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Article 1. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by the Convention. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.

2.In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation:


(a)

to carry out administrative measures at variance with the laws and administrative practice of that or the other Contracting State;

(b)

to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;

(c)

to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public).

Article 27

Employees of diplomatic and consular establishment

Nothing in this Convention shall affect the fiscal privileges of employees of diplomatic and consular establishments under the general rules of international law or under the provisions of special agreements.

Article 28

Entry into force

1.The Contracting States shall notify each other in writing through diplomatic channels that the internal legal requirements for the entry into force of this Convention have been complied with.

2.This Convention shall enter into force on the date of the latter of the notifications referred to in paragraph 1 and its provisions shall apply:


(a)

in respect of taxes withheld at source, to amounts of income derived on or after 1 January in the calendar year next following the year in which the Convention enters into force;

(b)

in respect of other taxes on income, to such taxes chargeable for any taxable year beginning on or after 1 January in the calendar year next following the year in which the Convention enters into force.

Article 29

Termination

This Convention shall remain in force until terminated by one of the Contracting States. Either Contracting State may terminate the Convention, through diplomatic channels, by giving notice in writing of termination at least six months before the end of any calendar year following after the period of five years from the date on which the Convention enters into force. In such event the Convention shall cease to have effect:


(a)

in respect of taxes withheld at source, to amounts of income derived on or after 1 January in the calendar year next following the year in which the notice is given;

(b)

in respect of other taxes on income, to such taxes chargeable for any taxable year beginning on or after 1 January in the calendar year next following the year in which the notice is given.

Done at Moscow on 25th of April, 1994, which corresponds to 14th of Iyar, 5754, in duplicate original copies, each in the Hebrew, Russian and English languages, the three texts being equally authentic. In the case of any divergence, the interpretation shall be in accordance with the English text.

PROTOCOL

At the signing of the Convention between the Government of the State of Israel and the Government of the Russian Federation for the Avoidance of Double Taxation and for the Prevention of Fiscal Evasion with respect to Taxes on Income (hereinafter referred to as "the Convention"), the undersigned have agreed upon the following provisions which shall form an integral part of the Convention.

1.With reference to paragraph 3 of Article 2 it is understood that the taxes mentioned include: in the case of Israel -- a tax on the profit and payroll of banks and insurance companies, and in the case of Russia -- a tax on capital gains.

2.With respect to paragraph 6 of Article 23 it is understood that the term "branch tax" means a tax on the expatriation of earnings of a permanent establishment, the purpose of which is to equalize such permanent establishment's tax burden in the Contracting State in which it is situated with the tax burden of a similarly situated subsidiary corporation.

3.With respect to Article 27 it is understood that a Contracting State shall retain the right to levy its taxes on local staff workers employed by the other Contracting State's Diplomatic and Consular establishments in accordance with the provisions of Article 19 of this Convention.

Done at Moscow on 25th of April 1994, which corresponds to 14th day of Iyar, 5754, in duplicate original copies, each in the Hebrew, Russian and English languages, the three texts being equally authentic. In the case of any divergence, the interpretation shall be in accordance with the English text.







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