With citizenship and residence sufficient to sustain United States taxation of worldwide income, a United States citizen, resident or corporation, is liable for United States taxes on all income derived from Israeli sources. Such income, being Israeli-linked by virtue of the source rules described in the first part of this article, will normally be subject to Israeli taxation. In these circumstances the United States taxpayer would be in principle subject to both Israeli and United States taxes.
In reality, however, double taxation is the exception to the rule. The United States has adopted unilateral relief measures in the form of the exemption from its taxes of certain income derived from sources outside the United States, the deductibility of foreign taxes, and a foreign tax credit. Israel, for her part, grants numerous exemptions from Israeli taxes to receipts which would be otherwise taxable, and greatly reduces its taxes on certain income. We turn first to those measures of relief afforded by the United States Internal Revenue Code.