Incredimail 2013 Annual Report Download - page 83

As an alternative to the tax treatment described above, a U.S. Holder could elect to treat us as a “qualified electing fund” (“QEF”),
in
which case the U.S. Holder would be required to include in income, for each taxable year that we are a PFIC, its pro rata share of our ordinary
earnings as ordinary income and its pro rata share of our net capital gains as capital gain, subject to a separate election to defer payment of taxes
where such deferral is subject to an interest charge. A U.S. Holder may make a QEF election only if we furnish such U.S. Holder with certain tax
information. We currently do not provide this information, and we do not intend to take any actions that would be necessary to permit U.S.
Holders to make a QEF election in the event we become a PFIC.
As an alternative to making a QEF election, a U.S. Holder of PFIC stock which is “marketable stock” (e.g., “regularly traded”
on the
Nasdaq Global Select Market) may in certain circumstances avoid certain of the tax consequences generally applicable to holders of stock in a
PFIC by electing to mark the stock to market as of the beginning of such U.S. Holder’
s holding period for the ordinary shares. As a result of such
election, in any taxable year that we are a PFIC, a U.S. Holder generally would be required to report gain or loss to the extent of the difference
between the fair market value of the ordinary shares at the end of the taxable year and such U.S. Holder’
s tax basis in its ordinary shares at that
time. Any gain under this computation, and any gain on an actual disposition of the ordinary shares in a year in which we are a PFIC, would be
treated as ordinary income. Any loss under this computation, and any loss on an actual disposition of the ordinary shares in a year in which we
are a PFIC, generally would be treated as ordinary loss to the extent of the cumulative net-mark-to-
market gain previously included. Any
remaining loss from marking ordinary shares to market will not be allowed, and any remaining loss from an actual disposition of ordinary shares
generally would be capital loss. A U.S. Holder’
s tax basis in its ordinary shares is adjusted annually for any gain or loss recognized under the
mark-to-
market election. There can be no assurances that there will be sufficient trading volume with respect to the ordinary shares in order for
the ordinary shares to be considered “regularly traded”
or that our ordinary shares will continue to trade on the Nasdaq Global Select Market.
Accordingly, there are no assurances that our ordinary shares will be marketable stock for these purposes. As with a QEF election, a mark-to-
market election is made on a shareholder-by-
shareholder basis, applies to all ordinary shares held or subsequently acquired by an electing U.S.
Holder and can only be revoked with consent of the IRS (except to the extent the ordinary shares no longer constitute “marketable stock”).
Based on our income, assets, activities and market capitalization, we do not believe that we were a PFIC for the taxable year ended
December 31, 2013 for U.S. federal income tax purposes. Our belief that we were not a PFIC for the 2013 taxable year is based on our estimate
of the fair market value of our assets, including our intangible assets and goodwill, which are not reflected in our financial statements under U.S.
GAAP. In calculating the value of our assets, we value our total assets, in part, based on our total market capitalization. We believe this valuation
approach is reasonable. However, there can be no assurances that the IRS could not successfully challenge our valuations or methods, which
could result in our classification as a PFIC. While we intend to manage our business so as to avoid PFIC status, to the extent consistent with our
other business goals, we cannot predict whether our business plans will allow us to avoid PFIC status or whether our business plans will change
in a manner that affects our PFIC status determination. In addition, because the market price of our ordinary shares is likely to fluctuate and
because that market price may affect the determination of whether we will be considered a PFIC, we cannot be certain that we will not be a PFIC
in 2014 or become a PFIC in any other future taxable year.
The rules applicable to owning shares of a PFIC are complex, and each prospective purchaser who would be a U.S. Holder should
consult with its own tax advisor regarding the consequences of investing in a PFIC.
Medicare Tax
For tax years beginning after December 31, 2012, certain non-
corporate U.S. Holders will be subject to an additional 3.8% Medicare tax
on all or a portion of the “net investment income,”
which may include dividends on, or capital gains recognized from the disposition of, our
ordinary shares. U.S. Holders are urged to consult their own tax advisors regarding the applicability of the Medicare tax to their investment in
our shares.
Tax Consequences for Non-U.S. Holders of Ordinary Shares
Except as described in “Information Reporting and Back-up Withholding” below, a Non-
U.S. Holder of our ordinary shares will not be subject
to U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our ordinary shares, unless,
in the case of U.S. federal income taxes:
• the item is effectively connected with the conduct by the Non-
U.S. Holder of a trade or business in the United States and (i) in the
case of a resident of a country which has a treaty with the United States, the item is attributable to a permanent establishment, or
(ii) in the case of an individual, the item is attributable to a fixed place of business in the United States; or
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