Agreement on Preparatory Transfer of Powers and
Protocol Concerning Preparatory Transfer of
Powers and Responsibilities in the Sphere of
The powers and responsibilities of the Civil Administration in the
sphere of direct taxation regarding income tax on income accrued or derived
in the West Bank will be transferred to and will be assumed by the
Powers and responsibilities regarding property tax will continue to be
exercised by the Civil Administration, though the income from this tax will
be transferred to the Palestinian Authority, after deducting the sums due to
The sphere of direct taxation shall include all matters dealt with in
the laws, regulations and military orders listed in Appendix A, subject to
the principles set forth below.
Without derogating from the principle of territoriality in taxation,
i.e., the right of each tax administration to levy the income tax on income
generated by economic activity in its area, and in accordance with the
Declaration of Principles and with the Gaza-Jericho Agreement:
The Palestinian Authority will levy and collect income tax on
Palestinians in respect of income accrued or derived in the West Bank
outside the settlements and the military locations.
The Civil Administration will levy and collect income tax on
Israelis in respect of income accrued or derived in the West Bank outside
the settlements and the military locations by any business or service which
accrues or derives an annual turnover in the West Bank outside the
settlements and military locations exceeding $7,000 US.
The tax will be levied in accordance with the Palestinian tax code in
force in the West Bank.
The Civil Administration will remit the tax collected to the Palestinian
For the purpose of subparagraph 3(b)(1) above and paragraph 5 below,
changes in the legislation regarding the definition of "accrued or derived"
income shall be made in the subcommittee established under paragraph 9.
In the event of disagreement regarding the implementation of this
paragraph when the Palestinian Authority considers that a business or
service should be taxed under this subparagraph, it may refer the matter to
the above mentioned subcommittee.
For the purpose of this Annex, and for the purpose of the
application of Appendix B to this Annex -
A corporation will be regarded as either a Palestinian or an Israeli
if the majority of its shares which grant rights to distribution of profits
are held by Palestinians or by Israelis, respectively.
For the purpose of subparagraph a. above, shares held by foreigners will
be considered as shares held by Palestinians, except with regard to
corporations operating within the settlements and military
Income accruing to a partnership or derived by it will be attributed to
its partners in accordance with their respective rights to profits and taxed
in accordance with the provisions of this Annex.
With regard to corporations in which Israelis and Palestinians hold
shares granting equal rights to distribution of profits, corporation tax
will be levied equally on each shareholder by the relevant tax authority, in
accordance with the principles of this Annex.
In the case of income accrued or derived by a foreigner, outside the
settlements and the military locations, income tax will be levied and
collected by the Palestinian Authority.
When an Israeli, including the military government and
its Civil Administration, remits payment to a Palestinian and the payment is
income taxable by the Palestinian Authority, the Israeli will deduct tax at
source in accordance with the rules of the Palestinian tax code regarding
the deduction at source by Palestinian payors and transfer it to the Civil
All activity relating to the assessment and collection of such
deductions will be carried out by the Civil Administration or by Israel.
The Civil Administration will transfer such deductions to the
Palestinian Authority in a manner to be agreed upon.
Procedures for implementation of the above mentioned arrangement for
deduction at source will be determined by the Joint Economic Committee
established under the Gaza-Jericho Agreement.
Pending the determination of the above mentioned procedures:
the present system of tax deduction at source from wages and
salaries will continue to apply with regard to payments to Palestinian
until 31 December, 1994, tax will be deducted at source at the rate of
5% from other payments to Palestinians referred to in subparagraph a. above,
subject to existing certificates concerning the reduction of deduction at
source which shall continue to remain in force notwithstanding their initial
date of expiration.
As of January 1, 1995, deduction at source from such payments will be
effected only on the basis of the procedures to be agreed upon.
When a Palestinian remits payment to an Israeli, there
will be no tax deduction at source.
The Palestinian Authority may transfer to the Civil Administration
information regarding such payments where it considers that the income of
the Israeli falls under paragraph 3(b) above, in order to assist the Civil
Administration in levying tax on such income.
The Civil Administration will transfer to the Palestinian Authority, on
a bimonthly basis, the sums collected from Israelis as advance payments in
respect of taxes to be collected by the Civil Administration under paragraph
Each tax year there will be a settling of accounts between the Civil
Administration and the Palestinian Authority with regard to the final tax
collected according to paragraph 3(b), taking into account the
aforementioned advance payments and any necessary resultant tax refunds.
Foreigners who are subject to income tax levied by the Palestinian
Authority will deduct tax at source in the same manner as
Until the Interim Agreement enters into force, Israel will transfer to
the Palestinian Authority a sum equal to 75% of the income taxes collected
by Israel from Palestinians employed in the settlements and military
locations and in Israel.
The two sides will establish a joint committee composed of
representatives of both tax authorities. This committee will discuss cases
where one side wishes to tax businesses or services subject to the tax
authority of the other side as well as cases where it is not clear by which
side tax should be levied and all cases concerning double taxation.
Tax enforcement by the Palestinian Authority shall be in accordance with
the principles set out in attached Appendix B.
Laws, Regulations and Military Orders in the Sphere of Direct
Income Tax Law, No. 25, 1964, except article 74(1), and as follows
(article numbers relate to Hebrew version):
28(a)(4)-(5) - will apply to civil examinations (not to criminal
29b, 34a(a)(2), 34a(d), 49(3), 54(3), 57, 63(c)-(d), 64, 66(4) - will be
subject to the principles regarding tax enforcement;
44(1) - will not apply to the military government, the Civil Administration
and their employees;
21, 62, 63(c), Capter 16 - will be subject to the principles regarding the
Regulations regarding Depreciation for Income Tax Purposes, No. 15, 1965
Regulations regarding Income Tax Deductions at Source from Salaries, No.
Regulations regarding Income Tax (Bookkeeping), 1988 (which adopted the
regulations regarding Bookkeeping, 1985)
Regulations regarding Income Tax (Forms Required for Deductions at
Regulations regarding Income Tax (Determining Payments for Services or
Goods and for Contracting as an Income), 1978
Regulations regarding Income Tax (Deduction at Source from Payments for
Services or Goods and for Contracting), 1978
Regulations regarding Income Tax (Determining Payments for Construction
Work and Shipping as an Income), 1986
Order regarding Encouragement of Capital Investment, No. 1342, 1991 -
with regard to income tax exemptions; except for articles 26, 27 and 28
29 and 30 - will be subject to the principles regarding tax
With regard to tax enforcement, the Palestinian Authority shall have
the powers and responsibilities set out in this Appendix, except in relation
to criminal offenses.
Gathering of Information
Concerning gathering of information, the Palestinian Authority shall be
demand and seize documents, information and other relevant
financial records from the assessee and any relevant third party.
require the appearance of any person at the taxation authorities'
offices in the West Bank and require that person to provide all relevant
reports and documents; and
enter any permanent place of business or residence of any person being
For the purpose of tax collection, the Palestinian Authority shall be
authorized to take the following measures:
attachments not relating to immovable property effected by
the service of documents without requiring any physical action, such as bank
attachment of monies and chattels in the debtor's permanent place of
business or residence only;
public auctions of the attached property or assets;
requests from the local courts in the West Bank to issue restraining
orders prohibiting the debtor to travel abroad; and
requests from the local courts in the West Bank to issue civil
imprisonment orders against tax defaulters.
The Palestinian Authority may establish a tax court in the West Bank for the
purpose of hearing appeals with regard to assessments and bookkeeping. The
details of this tax court shall be agreed in the CAC. Until the
establishment of this tax court, such appeals shall continue to be heard by
the local courts.
The Palestinian Authority shall not be authorized to take any
enforcement measures against Israelis.
The Palestinian Authority shall not have the power to exercise
enforcement measures affecting, directly or indirectly, the military
government or its Civil Administration. The two sides will agree upon the
mode and procedures regarding enforcement measures that require the
cooperation of the military government and its Civil Administration, with a
view to assisting the Palestinian Authority in carrying out its enforcement
measures, subject to considerations of security and public order.
The use of force required for the exercise of tax enforcement measures
shall be effected only by the Israeli authorities. Israel shall provide the
Palestinian Authority with the necessary assistance in this regard.
The enforcement measures set out in this Appendix shall be exercised by
the Palestinian Authority solely for tax collection and shall not be
exercised for any other purpose.
Cooperation and Exchange of Information
Israel and the Palestinian Authority shall cooperate, including by
exchanging information, to assist each other in the exercise of their powers
and responsibilities with regard to tax enforcement.
Legislation Regarding Tax Enforcement
Subject to the principles set out in this Appendix, the Palestinian
Authority is authorized, in addition to the measures included in the
legislation set out in Appendix A, to take tax enforcement measures included
in the following legislation:
Law regarding Collection of Public Monies, No. 6, 1952,
except for articles 10, 11, 12A (appeals will be brought before the local
courts), 14, 16(A) (with regard to payments owed by the Palestinian
Order regarding Amendment of the Collection of Public Monies Law, No.
Rules regarding Collection of Public Monies, 1988, except for articles
4(b)-(c), 22, 23
Rules regarding Collection of Public Monies (Imprisonment of a Debtor),
Order regarding Taxes (Fine for Late Payment), No. 1296, 1990
Order regarding Rounding Off of Sums, No. 1164, 1986
Order regarding Tax Collection (Auxiliary Authorities) (Temporary
Order), No. 1262, 1989 - with regard to permits and services provided by the