Incredimail 2010 Annual Report Download - page 76

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 any gain realized on the sale or exchange of ordinary shares unless:
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. A non-
U.S.
corporation will be considered a passive foreign investment company for any taxable 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 consists of
passive assets, which generally means assets that generate, or are held for the production of, passive income. Passive income may include
amounts derived by reason of the temporary investment of funds. If we were classified as a passive foreign investment company, 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 year prior to the first taxable year in which we were a
passive foreign investment company would be taxed as ordinary income. The amount allocated to each of the other 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 other taxable years. The tax liability with respect to the amount allocated
to 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 passive foreign investment company 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 passive foreign investment company will be subject to the foregoing rules even if we cease to be a passive
foreign investment company.
We believe that we are not a passive foreign investment company for U.S. federal income tax purposes, but we cannot be certain
whether we will be treated as a passive foreign investment company for the current year or any future taxable year. Our belief that we will not be
a passive foreign investment company for the current year is based on our estimate of the fair market value of our intangible assets, including
goodwill, not reflected in our financial statements under U.S. GAAP, and our projection of our income for the current year. If the IRS
successfully challenged our valuation of our intangible assets, it could result in our classification as a passive foreign investment company.
Moreover, because passive foreign investment company status is based on our income and assets for the entire taxable year, it is not possible to
determine whether we will be a passive foreign investment company for the current taxable year until after the close of the year. In the future, in
calculating the value of our intangible assets, we will value our total assets, in part, based on our total market value determined using the average
of the selling price of our ordinary shares on the last trading day of each calendar quarter. We believe this valuation approach is reasonable.
While we intend to manage our business so as to avoid passive foreign investment company status, to the extent consistent with our other
business goals, we cannot predict whether our business plans will allow us to avoid passive foreign investment company status or whether our
business plans will change in a manner that affects our passive foreign investment company status determination. In addition, because the market
price of our ordinary shares is likely to fluctuate and the market price of the shares of technology companies has been especially volatile, and
because that market price may affect the determination of whether we will be considered a passive foreign investment company, we cannot
assure that we will not be considered a passive foreign investment company for any taxable year.
•
that gain is effectively connected with the conduct by the Non
-
U.S. Holder of a trade or business in the United States, or
• in the case of any gain realized by an individual Non-
U.S. Holder, that holder is present in the United States for 183 days or more
in the taxable year of the sale or exchange, and other conditions are met.
67