Israeli Tax Alerts | Practical Interpretations | 2008-2020

145 are being abused." According to the Court, treaty benefits apply only where the taxpayer operates in good faith. The domestic anti-abuse provisions combine with relevant treaty provisions. A tax treaty is designed to prevent double taxation and not for abusive purposes. The fundamental legal concept of good faith should also apply while referring to tax treaties benefits, based on the precise wording of Article 31 of the Vienna Convention on the Law of Treaties. The intention of treaty parties should be interpreted in light of the current sophisticated tax planning business world. Possible Implications of the Decision Complicated tax structuring, in cases where business motivation may not be the main motivation, could put shareholders and investors in a problematic situation from an Israeli tax law perspective. Other anti-abuse provisions in the Israeli Domestic Law may also apply. This may affect due diligence processes related to Israeli public as well as private companies. Specific Israeli tax planning issues, such as the election of specific jurisdictions for holding purposes, management and control or inter-group transactions, should cautiously and wisely be organized and performed. (March 2008) New Income Tax Treaty between Israel and the UK Recently, the ITA has been "updating" old income tax treaties which were concluded by Israel in the sixties. The new treaties are based on the OECD Model Convention on Income and Capital. A new tax treaty with Germany was signed (with initials) and similarly the new tax treaty with the UK (April 2, 2009). The full text of the treaties shall not be published before they are formally and fully signed and become effective. However, the Israeli Foreign ministry has issued a briefing regarding the UK - Israel treaty. This includes the following information: Dividends - No withholding tax (" WHT ") on dividend distributions in case of a minimal (substantial) holding of 10% by the parent company and 5% in all other cases (instead of the 15% WHT); No WHT will be imposed if the recipient is a pension fund. A new provision in Israeli tax treaties was firstly introduced in relation to REIT: a maximal WHT rate of 15% on payments from REIT's if the recipient holds less than 10% interest in the distributing REIT. Interest - the former 15% WHT rate is replaced with a maximal rate of 5% WHT. In addition, the taxpayer may elect to be taxes on the net interest income as business income. A WHT