Incredimail 2011 Annual Report Download - page 77

This discussion also does not consider the tax treatment of persons or partnerships that hold ordinary shares through a partnership or other pass-
through entity
or the possible application of United States federal gift or estate tax or alternative minimum tax.
We urge you to consult with your own tax advisor regarding the tax consequences of investing in the ordinary shares, including the effects of federal, state,
local, foreign and other tax laws.
Distributions Paid on the Ordinary Shares
In 2009 and 2010 we instituted a policy for distributing dividends, which policy was changed with respect to profits of 2011 and onwards, (see “
Item 8.
Financial Information A. Consolidated Statements and Other Financial Information - Policy on Dividend Distribution” for more information about the Company’
s
dividend policy). Therefore, subject to the discussion below under "Passive Foreign Investment Company Considerations," a U.S. Holder generally will be required to
include in gross income as ordinary dividend income the amount of any distributions paid on the ordinary shares, including the amount of any Israeli taxes withheld, to
the extent that those distributions are paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. Subject to the
discussion below under "Passive Foreign Investment Company Considerations," distributions in excess of our earnings and profits will be applied against and will
reduce the U.S. Holder’
s tax basis in its ordinary shares and, to the extent they exceed that tax basis, will be treated as gain from a sale or exchange of those ordinary
shares. Our dividends will not qualify for the dividends-
received deduction applicable in some cases to U.S. corporations. Dividends paid in NIS, including the amount
of any Israeli taxes withheld, will be includible in the income of a U.S. Holder in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date
they are included in income by the U.S. Holder, regardless of whether the payment in fact is converted into U.S. dollars. Any gain or loss resulting from currency
exchange fluctuations during the period from the date the dividend is includible in the income of the U.S. Holder to the date that payment is converted into U.S. dollars
generally will be treated as ordinary income or loss.
A non-corporate U.S. holder’
s "qualified dividend income" currently is subject to tax at reduced rates not exceeding 15%. For this purpose, "qualified
dividend income" generally includes dividends paid by a foreign corporation if either:
In addition, under current law a U.S. Holder must generally hold his ordinary shares for more than 60 days during the 121 day period beginning 60 days prior
to the ex-dividend date, and meet other holding period requirements for qualified dividend income.
Dividends paid by a foreign corporation will not qualify for the reduced rates, if the dividend is paid in a tax year of the recipient beginning after December
31, 2002, unless such corporation is treated, for the tax year in which the dividend is paid or the preceding tax year, as a "passive foreign investment company" for
U.S. federal income tax purposes. We do not believe that we will be classified as a "passive foreign investment company" for U.S. federal income tax purposes for our
current taxable year. However, see the discussion under "Passive Foreign Investment Company Considerations" below.
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).
• persons (other than Non-U.S. Holders) having a functional currency other than the U.S. dollar; and
•
direct, indirect or constructive owners of 10% or more, by voting power or value, of us.
(a)
the stock of that corporation with respect to which the dividends are paid is readily tradable on an established securities market in the U.S., or
(b)
that corporation is eligible for benefits of a comprehensive income tax treaty with the U.S. which includes an information exchange program and is
determined to be satisfactory by the U.S. Secretary of the Treasury. The Internal Revenue Service has determined that the U.S.-
Israel Tax Treaty is
satisfactory for this purpose.
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