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Article XIX. 1. It is agreed that double taxation shall be avoided in the following manner:

(a) The Italian Government in determining its income and capital taxes specified in article 1 of this Convention in the case of its residents or companies may, regardless of any other provision of this Convention, include in the basis upon

which such taxes are imposed all items of income or of capital; the Italian Government shall, however, deduct from the taxes so calculated the Israeli tax on income or on capital (not exempt in Israel under this Convention) in the following manner:

(i) If the item of income is, according to the Italian law, subjected to the tax on income from movable wealth, the tax paid in Israel shall be deducted from the tax on income from movable wealth, but in an amount not exceeding that proportion of the aforesaid taxes which such income bears to the entire income.

Where the tax paid in Israel on such income is higher than the deduction so calculated, the difference shall be deducted from the complementary tax or from the tax on companies, as the case may be, but in an amount not exceeding that proportion of the tax which the item of income bears to the entire income;

(ii) If the item of income is only subjected to the complementary tax or to the tax on companies, the deduction shall be granted from the complementary tax or from the tax on companies, as the case may be, but for that part of the tax paid in Israel which exceeds 25 per cent of such item of income. The deduction cannot however exceed that proportion

of the complementary tax or of the tax on companies which such income bears to the entire income;

(iii) In so far as taxes on capital are concerned, the Italian Government shall deduct from its tax on capital the tax on capital paid in Israel on the same item of capital. The deduction cannot however exceed that proportion of the Italian tax which the item of capital owned in Israel bears to the

entire capital.

(b) In Israel:

(i) Italian tax payable, whether directly or by deduction, in respect of income from sources within Italy shall be allowed as a credit against any Israeli tax payable in respect of that income. Provided that such credit shall not exceed that proportion of the Israeli tax which such income bears to the entire income.

Where such income is an ordinary dividend paid by a company resident in Italy, the credit shall take into account (in addition to any Italian tax appropriate to the dividend) the Italian tax payable by the company in respect of its profits, and where it is a dividend paid on participating preference shares and representing both a divided at the fixed rate to

which the shares are entitled and additional participation in profits, the Italian tax so payable by the company shall likewise be taken into account in so far as the dividend exceeds that fixed rate;

(ii) Tax on capital paid in the Italian Republic shall be allowed as a credit against Israeli tax on capital on the same item of capital. The creditVol. 1332, I-22351