Incredimail 2013 Annual Report Download - page 82

Subject to certain conditions and limitations, non-
U.S. income tax as withheld on dividends may be deducted from taxable income or
credited against a U.S. Holder’
s U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with
respect to specific classes of income. Dividends paid by us generally will be foreign source “passive income”
for U.S. foreign tax credit
purposes. U.S. Holders that do not elect to claim a foreign tax credit may generally instead claim a deduction for the non-
U.S. income taxes
withheld if such U.S. Holders itemize their deductions for U.S. federal income tax purposes. The rules relating to the determination of foreign
source income and the foreign tax credit are complex, and the availability of a foreign tax credit depends on numerous factors. U.S. holders
should consult their tax advisors regarding the application of the foreign tax credit rules.
A U.S. holder will be denied a foreign tax credit for non-
U.S. income taxes withheld from a dividend received on the ordinary shares (i)
if the U.S. holder has not held the ordinary shares for at least 16 days of the 31-day period beginning on the date which is 15 days before the ex-
dividend date with respect to such dividend or (ii) to the extent the U.S. holder is under an obligation (whether pursuant to a short sale or
otherwise) to make related payments with respect to positions in substantially similar or related property. Any days during which a U.S. holder
has substantially diminished its risk of loss on the ordinary shares are not counted toward meeting the required 16-day holding period.
Disposition of Ordinary Shares
Upon the sale or other disposition of ordinary shares, subject to the discussion below under "Passive Foreign Investment Company
Considerations," a U.S. Holder generally will recognize capital gain or loss equal to the difference between the amount realized on the
disposition and the holder’
s adjusted tax basis in the ordinary shares. Gain or loss upon the disposition of the ordinary shares will be treated as
long-term if, at the time of the sale or disposition, the ordinary shares were held for more than one year. Long-term capital gains realized by non-
corporate U.S. Holders generally are subject to reduced rates of tax (currently, a maximum rate of 20% applies). The deductibility of capital
losses by a U.S. Holder is subject to limitations.
A U.S. holder that uses the cash method of accounting calculates the dollar value of the proceeds received on the sale as of the date that
the sale settles. However, a U.S. holder that uses the accrual method of accounting is required to calculate the value of the proceeds of the sale as
of the trade date and may therefore realize foreign currency gain or loss. A U.S. holder may avoid realizing foreign currency gain or loss by
electing to use the settlement date to determine the proceeds of sale for purposes of calculating the foreign currency gain or loss. In addition, a
U.S. holder that receives foreign currency upon disposition of ordinary shares and converts the foreign currency into dollars after the settlement
date or trade date (whichever date the U.S. holder is required to use to calculate the value of the proceeds of sale) may have foreign exchange
gain or loss based on any appreciation or depreciation in the value of the foreign currency against the dollar, which will generally be U.S. source
ordinary income or loss.
Passive Foreign Investment Company Considerations
Special U.S. federal income tax rules apply to U.S. Holders owning shares of a passive foreign investment company or “PFIC.” A non-
U.S. corporation will be considered a PFIC for any tax year in which, after applying certain look-
through rules, 75% or more of its gross income
consists of specified types of passive income, or 50% or more of the average value of its assets (determined on an average quarterly basis)
consists of passive assets, which generally means assets that generate, or are held for the production of, passive income.
If we were classified as a PFIC, a U.S. Holder could be subject to increased tax liability upon the sale or other disposition of ordinary
shares or upon the receipt of amounts treated as "excess distributions." Under these rules, the excess distribution and any gain would be allocated
ratably over the U.S. Holder’
s holding period for the ordinary shares, and the amount allocated to the current taxable year and any taxable years
prior to the first taxable year in which we were a PFIC would be taxed as ordinary income. The amount allocated to each of the prior taxable
years would be subject to tax at the highest marginal rate in effect for the applicable class of taxpayer for that year, and an interest charge for the
deemed deferral benefit would be imposed on the resulting tax allocated to such prior taxable years. The tax liability with respect to the amount
allocated to taxable years prior to the year of the disposition, or "excess distribution," cannot be offset by any net operating losses. In addition,
holders of stock in a PFIC may not receive a "step-
up" in basis on shares acquired from a decedent. U.S. Holders who hold ordinary shares
during a period when we are a PFIC will be subject to the foregoing rules even if we cease to be a PFIC. Unless otherwise provided by the IRS,
if a non-U.S. corporation is a PFIC, a U.S. Holder generally is required to file an annual informational return with the IRS.
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