ARTICLE 2

General Definitions

Paragraph (1) sets out definitions of certain basic terms used in the Convention. Unless the context otherwise requires, the terms defined in this paragraph have a uniform meaning throughout the Convention. A number of important terms, however, are defined elsewhere in the Convention.

The term “United States” means the United States of America. When used in a geographical sense, the term means the states of the United States and the District of Columbia. Thus, the Convention does not apply to the possessions of the United States or the Commonwealth of Puerto Rico. The term “Israel” means the State of Israel.

When used in a geographical sense, the terms “United States” and “Israel” also include their respective territorial seas, and in general accord with the principles of section 638 of the Code, their respective continental shelves.

The term “Contracting State” is defined to mean the United States or Israel as the context requires. The term “State” means the United States, Israel, or any other national State.

The term “person” is defined as including an individual, a partnership, a corporation, an estate or a trust.

The term “United States corporation” is defined as a corporation, or any unincorporated entity which is treated as a corporation for United States tax purposes, which is created or organized under the laws of the United States, any state thereof, or the District of Columbia. An Israeli corporation is defined as any body of persons taxed as a body of persons resident in Israel under its income tax ordinance. Thus, for example, a corporation incorporated in a State other than a Contracting State which is taxed by Israel as a body of persons resident in Israel will be an Israeli corporation for purposes of the Convention. See, however, the discussion of paragraph (3) of Article 3 (Fiscal Residence) for the treatment of a corporation which is both resident of the United States and a resident of Israel.

With respect to the United States, the term “competent authority” means the Secretary of the Treasury or his delegate. With respect to Israel, it means the Minister of Finance or his delegate. The term “tax” means those taxes imposed by the United States or Israel to which the

Convention applies by virtue of Article 1 (Taxes Covered).

The term “international traffic” is defined as any voyage of a ship or aircraft operated by a resident of one of the Contracting States except where such voyage is confined solely to places within a Contracting State. Thus, for example, coastal shipping along the Atlantic coast of the United States is not a voyage in international traffic. However, if a ship operated by a resident of Israel transports goods from Canada to the United States, leaving some of the goods in New York and the remainder in Norfolk, the portion of the voyage between New York and Norfolk is international traffic.

Paragraph (2) provides that any term used in the Convention which is not defined therein shall, unless the context otherwise requires, have the meaning which it has under the laws of the Contracting State whose tax is being determined. However, where a term has a different meaning under the laws of Israel and the United States or where the meaning under the laws of one of the Contracting States is not readily determinable, the competent authorities may for purposes of the Convention establish a common meaning, which may differ from the meaning under the laws of either or both Contracting States, in order to prevent double taxation or to further any other purpose of the Convention.