Israeli Tax Alerts | Practical Interpretations | 2008-2020

99 of the Income Tax Ordinance for taking the credit in the relevant tax year (the year in which the income is declared in Israel). The discussion in the District Court centered on the interpretation of the phrasing of article 26(3) of the Treaty, which requires Israel, under the circumstances, to allow a US tax credit against the Israeli taxes, where the credit shall be " in accordance with the provisions and subject to the limitations of the law of Israel (as it may be amended from time to time without changing the general principle hereof) ". This phrase appears in the Model Tax Convention of the OECD, and in all tax treaties in which Israel is a partner. The question at hand was whether denial of the credit by internal law (deferring it to subsequent years as excess credit, in effect) is part of those same provisions and limitations of the law of Israel, or whether it changes the " general principle hereof " (relief from double taxation). The District Court ruled in favor of the company, by stating that the principle of relief from double taxation suffices to take precedence over the provisions of the internal law which limit granting of credit. The Supreme Court ruling overturned this decision, and established that provisions regarding the offset period are within the realm of those provisions and limitations of the law of Israel, as established by the aforementioned article 26(3), and do not constitute a change nor an annulment of the general principle. The court found additional support in the fact that denial of the credit as established in clause 207B of the Ordinance is not absolute, and taxes paid beyond the required period could be granted as excess credit in subsequent years (in accordance with the principles laid out in the chapter on credit). (July 2018) Granting options whose vesting is exit event dependent to employees on relocation Several weeks ago a (consentual) tax ruling was published on the subject of employee options - voiding options that at the time of vesting were dependent on an exit event and reissuing them on the "trustee capital gains" track (a track in which the benefit value is not recognized