Australian Tax Treaties
Israeli Convention
CONVENTION BETWEEN THE GOVERNMENT OF AUSTRALIA AND THE GOVERNMENT OF THE STATE OF ISRAEL FOR THE ELIMINATION OF DOUBLE TAXATION WITH RESPECT TO TAXES ON INCOME AND THE PREVENTION OF TAX EVASION AND AVOIDANCE
CHAPTER III
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TAXATION OF INCOME
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 beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed:
a) 5 per cent of the gross amount of the interest if the interest is derived by a financial institution which is unrelated to and dealing wholly independently with the payer, provided that the interest is not paid as part of an arrangement involving back-to-back loans or other arrangement that is economically equivalent and intended to have a similar effect to back-to-back loans. For the purposes of this Article, the term " financial institution " means a bank or other enterprise substantially deriving its profits by raising debt finance in the financial markets or by taking deposits at interest and using those funds in carrying on a business of providing finance;
b) 5 per cent of the gross amount of the interest if the interest is derived by:
c) 10 per cent of the gross amount of the interest in all other cases.
3.
Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State if the interest is derived by a Contracting State or a political or administrative subdivision or a local authority thereof (including a government investment fund), or the Reserve Bank of Australia or the Bank of Israel.
4.
Notwithstanding the provisions of subparagraph b) of paragraph 2 and paragraph 3, interest referred to in those provisions may be taxed in the State in which it arises at a rate not exceeding 10 per cent of the gross amount of the interest if the beneficial owner of the interest is in a position to control or influence the key decision-making of the issuer of the debt-claim.
5.
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, as well as income which is subjected to the same taxation treatment as income from money lent by the law of the Contracting State in which the income arises.
6.
The provisions of paragraphs 1, 2, 3 and 4 of this Article 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 and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 (Business Profits) shall apply.
7.
Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State, or the payer is a resident of the other Contracting State under paragraphs 2 or 3 of Article 4 (Resident) and the interest is allowed as a deduction for the payer in the first-mentioned State against income derived in that first-mentioned State. Where, however, the person paying the interest, whether that person is a resident of a Contracting State or not, has in a Contracting State or outside both Contracting States a permanent establishment in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment, then such interest shall be deemed to arise in the State in which the permanent establishment is situated.
8.
Where, by reason of a special relationship between the payer and the beneficial owner of the interest, 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 might have been expected to 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.
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 beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed:
a) 5 per cent of the gross amount of the interest if the interest is derived by a financial institution which is unrelated to and dealing wholly independently with the payer, provided that the interest is not paid as part of an arrangement involving back-to-back loans or other arrangement that is economically equivalent and intended to have a similar effect to back-to-back loans. For the purposes of this Article, the term " financial institution " means a bank or other enterprise substantially deriving its profits by raising debt finance in the financial markets or by taking deposits at interest and using those funds in carrying on a business of providing finance;
b) 5 per cent of the gross amount of the interest if the interest is derived by:
(i) in the case of Australia, a recognised pension fund of Australia, or a resident of Australia, deriving such interest from the carrying on of complying superannuation activities; or
(ii) in the case of Israel, a recognised pension fund of Israel whose income is exempt from Israeli tax or a resident of Israel deriving such interest in respect of a pension plan that has been approved in accordance with the provisions of the Control of Financial Services Act (Provident Funds) 2005 as a pension Provident Fund and such interest, in effect, is not taxed in Israel; and
c) 10 per cent of the gross amount of the interest in all other cases.
3.
Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State if the interest is derived by a Contracting State or a political or administrative subdivision or a local authority thereof (including a government investment fund), or the Reserve Bank of Australia or the Bank of Israel.
4.
Notwithstanding the provisions of subparagraph b) of paragraph 2 and paragraph 3, interest referred to in those provisions may be taxed in the State in which it arises at a rate not exceeding 10 per cent of the gross amount of the interest if the beneficial owner of the interest is in a position to control or influence the key decision-making of the issuer of the debt-claim.
5.
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, as well as income which is subjected to the same taxation treatment as income from money lent by the law of the Contracting State in which the income arises.
6.
The provisions of paragraphs 1, 2, 3 and 4 of this Article 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 and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 (Business Profits) shall apply.
7.
Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State, or the payer is a resident of the other Contracting State under paragraphs 2 or 3 of Article 4 (Resident) and the interest is allowed as a deduction for the payer in the first-mentioned State against income derived in that first-mentioned State. Where, however, the person paying the interest, whether that person is a resident of a Contracting State or not, has in a Contracting State or outside both Contracting States a permanent establishment in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment, then such interest shall be deemed to arise in the State in which the permanent establishment is situated.
8.
Where, by reason of a special relationship between the payer and the beneficial owner of the interest, 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 might have been expected to 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.
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