Vistaprint 2006 Annual Report Download - page 34

Table of Contents
majority of our sales are billed to our customers’ credit card accounts directly. We retain our customers’ credit card information for a limited time
following a purchase of products for the purpose of issuing refunds. We rely on encryption and authentication technology licensed from third
parties to effect secure transmission of confidential information, including credit card numbers. Advances in computer capabilities, new discoveries
in the field of cryptography or other developments may result in a compromise or breach of the technology used by us to protect customer
transaction data. Any such compromise of our security could damage our reputation and brand and expose us to a risk of loss or litigation and
possible liability which would substantially harm our business and results of operations. In addition, anyone who is able to circumvent our security
measures could misappropriate proprietary information or cause interruptions in our operations. We may need to expend significant resources to
protect against security breaches or to address problems caused by breaches.
In addition, under current credit card practices, we are liable for fraudulent credit card transactions because we do not obtain a cardholder’s
signature. We do not currently carry insurance against this risk. To date, we have experienced minimal losses from credit card fraud, but we
continue to face the risk of significant losses from this type of fraud. Our failure to adequately control fraudulent credit card transactions could
damage our reputation and brand and substantially harm our business and results of operations.
Risks Related to Our Corporate Structure
Non−Bermuda tax authorities may tax some or all of VistaPrint Limited’s income, which would increase our effective tax rate and
adversely affect our earnings.
VistaPrint Limited is organized in Bermuda and conducts business through operations within Bermuda. Bermuda does not currently impose
income taxes on our operations. Management services are provided to VistaPrint Limited by employees of our United States subsidiary, who are
all based in the United States. We have endeavored to structure our business so that all of our non−Bermuda operations are carried out by our
local subsidiaries and VistaPrint Limited’s business income is, in general, not subject to tax in these non−Bermuda jurisdictions, such as the
United States, Canada, or the Netherlands. VistaPrint Limited has filed tax returns on the basis that it is not engaged in business in these
non−Bermuda jurisdictions. Many countries’ tax laws, including but not limited to United States tax law, do not clearly define activities that
constitute being engaged in a business in that country. The tax authorities in these countries could contend that some or all of VistaPrint Limited’s
income should be subject to income or other tax or subject to withholding tax. If VistaPrint Limited’s income is taxed in jurisdictions other than
Bermuda, such taxes will increase our effective tax rate and adversely affect our results of operations.
United States corporations are subject to United States federal income tax on the basis of their worldwide income. Foreign corporations
generally are subject to United States federal income tax only on income that has a sufficient nexus to the United States. On October 22, 2004,
the United States enacted the American Jobs Creation Act of 2004, or the AJCA. Under the AJCA, foreign corporations that after March 4, 2003
complete the acquisition of substantially all of the properties of a United States corporation and that meet certain ownership, operational and other
tests are treated as United States corporations for United States federal income tax purposes and, therefore, are subject to United States federal
income tax on their worldwide income. The AJCA grants broad regulatory authority to the Secretary of the Treasury to provide regulations as may
be appropriate to determine whether a foreign corporation is treated as a United States corporation. We do not believe that the relevant provisions
of the AJCA as currently enacted apply to VistaPrint Limited, but there can be no assurance that the Internal Revenue Service will not challenge
this position or that a court will not sustain any such challenge. A successful challenge could result in VistaPrint Limited being subject to tax in the
United
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