Incredimail 2012 Annual Report Download - page 79

Under the U.S.-
Israel Tax Treaty, the maximum rate of tax withheld in Israel on dividends paid to a holder of our ordinary shares who
is a U.S. resident (for purposes of the U.S.-Israel Tax Treaty) is 25%. However, generally, the maximum rate of
withholding tax on dividends,
not generated by our Preferred Enterprise that are paid to a U.S. corporation holding 10% or more of our outstanding voting capital throughout
the tax year in which the dividend is distributed as well as the previous tax year, is 12.5%. The lower 12.5% rate does not apply if the company
has more than 25% of its gross income derived from certain types of passive income. Furthermore, dividends paid from income derived from our
Preferred Enterprise are subject, under certain conditions, to withholding at the rate of 15%. We cannot assure you that we will designate the
profits that are being distributed in a way that will reduce shareholders’ tax liability. A non-
resident of Israel who receives dividends from which
tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income, provided such income was not derived
from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.
Capital Gains Taxes Applicable to Non-Israeli Resident Shareholders.
Shareholders that are not Israeli residents are generally exempt
from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our ordinary shares, provided that (1) such
shareholders did not acquire their shares prior to our initial public offering, (2) the shares are listed for trading on the Tel Aviv Stock Exchange
and/or a foreign exchange, and (3) such gains did not derive from a permanent establishment of such shareholders in Israel. However, non-
Israeli corporations will not be entitled to the foregoing exemptions if Israeli residents (i) have a controlling interest of 25% or more in such non-
Israeli corporation, or (ii) are the beneficiaries of or are entitled to 25% or more of the revenues or profits of such non-
Israeli corporation,
whether directly or indirectly. In certain instances, where our shareholders may be liable to Israeli tax on the sale of their ordinary shares, the
payment of the consideration may be subject to the withholding of Israeli tax at the source.
Under the U.S.-
Israel Tax Treaty, the sale, exchange or disposition of our ordinary shares by a shareholder who is a U.S. resident (for
purposes of the U.S.-
Israel Tax Treaty) holding the ordinary shares as a capital asset is exempt from Israeli capital gains tax unless either (i) the
shareholder holds, directly or indirectly, shares representing 10% or more of our voting capital during any part of the 12-
month period preceding
such sale, exchange or disposition, or (ii) the capital gains arising from such sale are attributable to a permanent establishment of the shareholder
located in Israel.
Transfer Pricing
In accordance with Section 85A of the Israeli Tax Ordinance, if in an international transaction (where at least one party is a non-
Israeli
or all or part of the income from such transaction is to be taxed abroad as well as in Israel) there is a special relationship between the parties
(including but not limited to family relationship or a relationships of control between companies), and due to this relationship the price set for an
asset, right, service or credit was determined or other conditions for the transaction were set such that a smaller profit was realized than what
would have been expected to be realized from a transaction of this nature, then such transaction shall be reported in accordance with customary
market conditions and tax shall be charged accordingly. The assessment of whether a transaction falls under the aforementioned definition shall
be implemented in accordance with one of the procedures mentioned in the regulations and is based, among others, on comparisons of
characteristics which portray similar transactions in ordinary market conditions, such as profit, the area of activity, nature of the asset, the
contractual conditions of the transaction and according to additional terms and conditions specified in the regulations.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a description of the material U.S. federal income tax considerations applicable to an investment in the
ordinary shares by U.S. Holders who acquire our ordinary shares and hold them as capital assets for U.S. federal income tax purposes. As used
in this section, the term "U.S. Holder" means a beneficial owner of an ordinary share who is:
• an individual citizen or resident of the United States;
•
a corporation created or organized in or under the laws of the United States or of any state of the United States or the District of
Columbia;
• an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
•
a trust if the trust has elected validly to be treated as a U.S. person for U.S. federal income tax purposes or if a U.S. court is able to
exercise primary supervision over the trust’
s administration and one or more U.S. persons have the authority to control all of the
trust
’
s substantial decisions.
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