Incredimail 2011 Annual Report Download - page 78

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.
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:
• 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.
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