Incredimail 2009 Annual Report Download - page 73

Subject to the discussion below under “Information Reporting and Back-up Withholding,” a Non-
U.S. Holder generally will not be
subject to U.S. federal income or withholding tax on dividends received on ordinary shares unless that income is effectively connected with the
conduct by that Non-U.S. Holder of a trade or business in the United States.
Controlled Foreign Corporation Considerations
If more than 50% of either the voting power of all classes of voting stock or the total value of stock is owned, directly or indirectly, by
citizens or residents of the U.S., U.S. domestic partnerships and corporations or estates or trusts other than foreign estates or trusts, each of which
owns 10% or more of the total combined voting power of all classes of stock entitled to vote (“10-Percent Shareholders”),
we could be treated as
a controlled foreign corporation (“CFC”),
for U.S. federal income tax purposes. This classification would, among other consequences, require
10-Percent Shareholders to include in their gross income their pro rata shares of “Subpart F income” (
as defined by the Code) and earnings
invested in U.S. property (as defined by the Code).
In addition, gain from the sale or exchange of preferred shares by a U.S. person who is or was a 10-
Percent Shareholder at any time
during the five-
year period ending with the sale or exchange is treated as dividend income to the extent of earnings and profits of the company
attributable to the stock sold or exchanged. Under certain circumstances, a corporate shareholder that directly owns 10% or more of voting
shares may be entitled to an indirect foreign tax credit for income taxes paid by us in connection with amounts so characterized as dividends
under the Code.
If we are classified as both a passive foreign investment company, as described below, and a CFC, we would generally not be treated as a
passive foreign investment company with respect to 10-Percent Shareholders. We believe that we are not and will not become a CFC.
Foreign Tax Credit
Any dividend income resulting from distributions we pay to a U.S. Holder with respect to the ordinary shares generally will be treated
as foreign source income for U.S. foreign tax credit purposes, which may be relevant in calculating such holder’
s foreign tax credit limitation.
Subject to certain conditions and limitations, Israeli tax 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. 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. Each prospective purchaser who would be a U.S. Holder should consult with its own tax
advisor to determine whether its income with respect to the ordinary shares would be foreign source income and whether and to what extent that
purchaser would be entitled to the credit.
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. U.S. Holders should consult their own advisors with respect to the tax
consequences of the receipt of a currency other than U.S. dollars upon such sale or other disposition.
In the event there is an Israeli income tax on gain from the disposition of ordinary shares, such tax should generally be the type of tax
that is creditable for U.S. tax purposes; however, because it is likely that the source of any such gain would be a U.S. source, a U.S. foreign tax
credit may not be available. U.S. shareholders should consult their own tax advisors regarding the ability to claim such credit.
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 are generally subject to a lower
marginal U.S. federal income tax rate than ordinary income, other than qualified dividend income, as defined above. The deductibility of capital
losses by a U.S. Holder is subject to limitations. In general, any gain or loss recognized by a U.S. Holder on the sale or other disposition of
ordinary shares will be U.S. source income or loss for U.S. foreign tax credit purposes. U.S. Holders should consult their own tax advisors
concerning the source of income for U.S. foreign tax credit purposes and the effect of the U.S.-Israel Tax Treaty on the source of income.
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