Does the US-Israel Tax Treaty Mean What It Says?

In the story of Alice in Wonderland, Humpty Dumpty tells Alice: “‘When I use a word…it means just what I choose it to mean — neither more nor less”.

Does the US-Israel tax treaty mean whatever the Israeli Tax Authority (ITA) chooses it to mean? This looks like the outcome of a Supreme Court case last year (Hapoalim Ussishkin Tel-Aviv vs Tel Aviv 5 Assessing officer, Civil Appeal 8416/21, July 16, 2023).


The Hapoel Tel-Aviv basketball club (called the Hapoel Ussishkin club until 2011) employs US players in their line-up to perform in matches in Israel. So do other clubs. Are they taxable in Israel under the US-Israel Tax Treaty (“the Treaty”)? The ITA said yes, the club and players said no. In a judgment which surprised many, the ITA won.

Article 17 generally imposes Israeli tax on US residents who work as employees in Israel. But Article 17 may exempt them if they are present in Israel less than 183 days in the tax year and are employed by a US resident corporation that does not charge their remuneration to a branch in Israel.

Article 18 of the Treaty says” Notwithstanding…Article 17…, the income derived by an individual who is a resident of one Contracting State [e.g. the US from his performance of personal services in the other Contracting State as an athlete, may be taxed by the other Contracting State (e.g. Israel, but only if the gross amount of such income exceeds US$400….There was no dispute that basketball players are athletes. The dispute was over the word “Notwithstanding”

Hapoel thought that because Article 18 begins with the word  “Notwithstanding”  basketball players who earned under $400 a day were exempt from Israeli tax. Therefore the club did not withhold tax from their pay. But the ITA disagreed and the Israeli Courts sided with the ITA because the players actually spent over 183 days in Israel and were taxable under Article 17 – notwithstanding the “Notwithstanding” in Article 18. Why??

The District Court had said athletes (and artistes) can make a lot of money in a short time and ought to be taxed when they visit, according to tax literature. The matter was appealed to the Supreme Court


The Supreme Court commented on the word “Notwithstanding”, saying: “It doesn’t mean that income below the threshold [i.e. $400/day} is completely exempt from tax. It can be taxed under other Articles in the Treaty …if their conditions are met. A review of the provisions of the US law may result in an exemption such as in this case on the assumption that the income is taxed were earned (i.e. in Israel). This interpretation is the only one which prevents Double Non-Taxation, which is completely unintended”. The Supreme Court was presumably referring to the Section 911 exclusion/exemption in the US tax law which has tight conditions.


With all due respect to the Supreme Court,  we are not sure where that is stated. Article 6(2) of the US-Israel Treaty says that: the US-Israel Treaty provisions shall not be construed to restrict in any manner any exclusion, exemption, deduction, credit, or other allowance now or hereafter accorded by the laws of either country or by any other agreement between them. In Israel, tax treaties are part of the tax law (ITO Section 196). We saw no mention of Treaty Article 6(2) in the Court judgment.

Does the Hapoel Case Affect Olim or others?

Olim (Immigrants and returnees who lived abroad 10 years) generally enjoy a ten year “tax holiday”, which is an exemption from Israeli tax on foreign income and gains. Olim may also be exempt from foreign tax on foreign capital gains and foreign pensions, among other things if they are derived during their tax holiday. Double non-taxation is possible during those 10 years. The UK now has a similar exemption period for 4 years for non-domiciled individuals. But Aliya involves uprooting and moving to Israel, usually out of Zionistic not tax inspiration.

So will the Hapoel case impact Olim? We doubt it as the ten year tax holiday is to entrenched in Israeli thinking and most foreign countries are less concerned about Israeli tax breaks for individuals.

Will the ITA challenge other tax treaty provisions? They already do if they suspect treaty shopping, i.e. structuring things unreasonably (in their opinion) to fit in with a tax treaty benefit.


Israel has tax treaties with around 60 countries. They mean just  what the ITA and Supreme Court choose them to mean, neither more nor less…

Next Steps:

Please contact us to discuss any of the above matters further, or any other matter.

As always, consult experienced professional advisors in each country at an early stage in specific cases.

[email protected]

(c) Leon Harris 15.4.24


(c) Leon Harris 2023

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