a joint task force will examine the double taxation treaty between the US and Israel

US Treasury Secretary Stephen Menuchin and Finance Minister Moshe Kahlon will appoint a joint task force to examine the double taxation treaty between the United States and Israel, and map the clauses in the treaty that need to be updated. At this stage, these are declarations, and both countries see fit to amend the convention. However, the process is expected to take several years to complete.
The treaties for the avoidance of double taxation are agreements between two states, in which the states determine the taxation rules that will apply to income and assets that have a connection to both countries. In the case of Israel and the United States, this is an old-fashioned treaty that requires companies to pay tax on dividends, interest and royalties based on rates set decades ago, and are among the highest in the world. Is expected to sharpen the problems of tax coordination between the two countries that existed earlier.
The main problems in the current convention are in the deduction items at source, which are a barrier to investments by Israelis in the US and by US companies in Israel The tax rates at source are 12.5% ​​-25% on dividends, 10% -17.5% on interest, and 10% 15% on royalties When an Israeli company pays royalties, interest or dividends to an American company, and vice versa, withholding tax in the country where the income is generated (the country of origin), the parent reports income in its countries of residence and accordingly receives a credit up to the tax it would have to pay Sometimes the deduction rates at source are so high that the deducted tax is higher than the original tax The Company must pay. Tax barriers are the two sides and it prevents correct economic activity.
The Israel-US Tax Convention came into force at the beginning of 1995. Since then, there have been many changes in the economic and legal environment of the two countries, tax rates have decreased significantly, and the accepted models of tax treaties have been replaced several times. And to map the main issues for which a change is required, and if it deems it appropriate, the task force will recommend that negotiations be opened between the representatives of the countries in order to update the tax treaty.
As early as the beginning of the year, representatives of the Chief Economist Division of the Israeli Ministry of Finance and the Tax Authority were in contact with representatives of the US Treasury Department regarding the manner in which the tax treaty between the two countries will be updated as a result of the US tax reform.