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- (1) Subject to the provisions of the law of the United Kingdom regarding the allowance as a credit against United Kingdom tax of tax payable in a territory outside the United Kingdom or, as the case may be, regarding the exemption from United Kingdom tax of a dividend arising in a territory outside the United Kingdom or of the profits of a permanent establishment situated in a territory outside the United Kingdom (which shall not affect the general principle hereof):
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- (a) Israel tax payable under the laws of Israel and in accordance with this Convention, whether directly or by deduction, on profits, income or chargeable gains from sources within Israel (excluding in the case of a dividend tax payable in respect of the profits out of which the dividend is paid) shall be allowed as a credit against any United Kingdom tax computed by reference to the same profits, income or chargeable gains by reference to which the Israel tax is computed;
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- (b) a dividend which is paid by a company which is a resident of Israel to a company which is a resident of the United Kingdom shall be exempted from United Kingdom tax when the exemption is applicable and the conditions for exemption under the law of the United Kingdom are met;
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- (c) the profits of a permanent establishment in Israel of a company which is a resident of the United Kingdom shall be exempted from United Kingdom tax when the exemption is applicable and the conditions for exemption under the law of the United Kingdom are met;
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- (d) in the case of a dividend not exempted from tax under sub-paragraph (b) above which is paid by a company which is a resident of Israel to a company which is a resident of the United Kingdom and which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividend, the credit mentioned in subparagraph (a) above shall also take into account the Israel tax payable by the company in respect of its profits out of which such dividend is paid.
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- (2) In the case of Israel double taxation shall be avoided as follows:
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- (a) Where a resident of Israel derives income which, in accordance with the provisions of this Convention, may be taxed in the United Kingdom, Israel shall (subject to the laws of Israel regarding the allowance of a credit of foreign taxes, which shall not affect the general principle contained in this paragraph) allow as a deduction from the tax on the income of that resident, an amount equal to the tax paid in the United Kingdom;
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- (b) Such deduction shall not, however, exceed that part of the income tax as computed before the deduction is given, which is attributable to the income which may be taxed in the United Kingdom.
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- (3) For the purposes of paragraphs (1) and (2) of this Article, profits, income and gains owned by a resident of one of the territories which may be taxed in the other territory in accordance with this Convention shall be deemed to arise from sources in that other territory.
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- (4) The provisions of paragraph (1) of this Article shall not apply where the Israel tax payable is in accordance with this Convention solely because the profits, income or chargeable gains referred to in that paragraph are also profits, income or chargeable gains derived by a resident of Israel.
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- (5) The provisions of paragraph (2) of this Article shall not apply where the United Kingdom tax payable is in accordance with the provisions of this Convention solely because the income referred to in that paragraph is also income derived by a resident of the United Kingdom.