Incredimail 2014 Annual Report Download - page 85

Medicare Tax
Non-
corporate U.S. Holders may be subject to an additional 3.8% surtax on all or a portion of the "net investment income," which
generally may include dividends on, or capital gains recognized from the disposition of, our ordinary shares. U.S. Holders are urged to consult
their own tax advisors regarding the applicability of the Medicare tax to their investment in our shares.
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 a 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.
As an alternative to the tax treatment described above, a U.S. Holder could elect to treat us as a "qualified electing fund" ("QEF"), in
which case the U.S. Holder would be required to include in income, for each taxable year that we are a PFIC, its pro rata share of our ordinary
earnings as ordinary income and its pro rata share of our net capital gains as capital gain, subject to a separate election to defer payment of taxes
where such deferral is subject to an interest charge. A QEF election is made on a shareholder-by-
shareholder basis, applies to all ordinary shares
held or subsequently acquired by an electing U.S. Holder and can only be revoked with consent of the IRS. A U.S. Holder may make a QEF
election only if we furnish such U.S. Holder with certain tax information. We currently do not provide this information, and we do not intend to
take any actions that would be necessary to permit U.S. Holders to make a QEF election in the event we become a PFIC.
As an alternative to making a QEF election, a U.S. Holder of PFIC stock which is "marketable stock" (e.g., "regularly traded" on the
Nasdaq Global Select Market) may in certain circumstances avoid certain of the tax consequences generally applicable to holders of stock in a
PFIC by electing to mark the stock to market as of the beginning of such U.S. Holder’
s holding period for the ordinary shares. As a result of such
election, in any taxable year that we are a PFIC, a U.S. Holder generally would be required to report gain or loss to the extent of the difference
between the fair market value of the ordinary shares at the end of the taxable year and such U.S. Holder’
s tax basis in its ordinary shares at that
time. Any gain under this computation, and any gain on an actual disposition of the ordinary shares in a year in which we are a PFIC, would be
treated as ordinary income. Any loss under this computation, and any loss on an actual disposition of the ordinary shares in a year in which we
are a PFIC, generally would be treated as ordinary loss to the extent of the cumulative net-mark-to-
market gain previously included. Any
remaining loss from marking ordinary shares to market will not be allowed, and any remaining loss from an actual disposition of ordinary shares
generally would be capital loss. A U.S. Holder’
s tax basis in its ordinary shares is adjusted annually for any gain or loss recognized under the
mark-to-
market election. There can be no assurances that there will be sufficient trading volume with respect to the ordinary shares in order for
the ordinary shares to be considered "regularly traded" or that our ordinary shares will continue to trade on the Nasdaq Global Select Market.
Accordingly, there are no assurances that our ordinary shares will be marketable stock for these purposes. As with a QEF election, a mark-to-
market election is made on a shareholder-by-
shareholder basis, applies to all ordinary shares held or subsequently acquired by an electing U.S.
Holder and can only be revoked with consent of the IRS (except to the extent the ordinary shares no longer constitute "marketable stock").
Based on our income, assets, activities and market capitalization, we do not believe that we were a PFIC for the taxable year ended
December 31, 2014 for U.S. federal income tax purposes. Our belief that we were not a PFIC for the 2014 taxable year is based on our estimate
of the fair market value of our assets, including our intangible assets and goodwill, which are not reflected in our financial statements under U.S.
GAAP. In calculating the value of our assets, we value our total assets, in part, based on our total market capitalization. We believe this valuation
approach is reasonable. However, there can be no assurances that the IRS could not successfully challenge our valuations or methods, which
could result in our classification as a PFIC. While we intend to manage our business so as to avoid PFIC status, to the extent consistent with our
other business goals, we cannot predict whether our business plans will allow us to avoid PFIC status or whether our business plans will change
in a manner that affects our PFIC status determination. In addition, because the market price of our ordinary shares is likely to fluctuate and
because that market price may affect the determination of whether we will be considered a PFIC, we cannot be certain that we will not be a PFIC
in 2015 or become a PFIC in any other future taxable year.
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