AGREEMENT ON PREPARATORY
TRANSFER OF POWERS AND
RESPONSIBILITIES

Annex V

Protocol Concerning Preparatory Transfer of Powers and Responsibilities in the Sphere of Direct Taxation

1. 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 Palestinian Authority.
   
   

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 municipalities.

2. 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.
   
   
3. 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:
   
   
1. 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.
   
   
1. 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.
   
   
2. The tax will be levied in accordance with the Palestinian tax code in force in the West Bank.
   
   
3. The Civil Administration will remit the tax collected to the Palestinian Authority.
   
   
4. For the purpose of subparagraph 3(b)(1) above and paragraph 5 below, changes in the legislation regarding the definition of "accrued or

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