Article VI of the Protocol amends Article 7 (Income from Real Property) by replacing the

text of paragraph (3) with a new text. The paragraph deals with the taxation of gain attributable to the alienation of real property. Gain from the alienation of the real property itself is dealt with in paragraph (1) of Article 7. Under paragraph (3), the Contracting State in which the underlying real property is located may tax the gain. The purpose of the change in paragraph (3) is to cover the full range of gains attributable to real property that may be taxed by the United States under the FIRPTA provisions in section 897 of the Code.

Subparagraph (a) of paragraph (3) of Article 7 provides that the United States may tax a

resident of Israel on gain from the alienation of a U.S. real property interest, or from the alienation of an interest in a partnership, trust or estate, to the extent attributable to a United States real property interest. The term "U.S. real property interest" is understood to have the same meaning as the term has in section 897 of the Code. Thus, an Israeli resident would be subject to U.S. tax on gain from the alienation of shares in a U.S. corporation, the property of which consists principally of U.S.-situs real property. Similarly, an Israeli resident would be subject to tax on a liquidating distribution by such a U.S. corporation and on a distribution by a Real Estate Investment Trust ("REIT") attributable to gain from the alienation of U.S. -situs real property. This provision also preserves the U.S. right to tax gain from the alienation of an int5re5t in a partnership, trust or estate, to the extent that the gain is attributable to U.S.-situs real property. Subparagraph (b) makes the provision reciprocal, and provides that Israel may tax a U.S. resident on gain from the alienation of comparable interests in Israeli real property.