Vistaprint 2007 Annual Report Download - page 37

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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 limit 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
for VistaPrint Limited 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 Jamaica, the
United States, Canada, Spain 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 amalgamation of our predecessor U.S. corporation
with VistaPrint Limited occurred in April 2002. 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
United States Internal Revenue Service will not challenge this position or that a court will not sustain
any such challenge. Furthermore, at various times during 2007 there were legislative proposals in the
U.S. Congress which, if enacted into law, would retroactively change the March 4, 2003 AJCA
measurement date to March 20, 2002. A successful challenge by the Internal Revenue Service, or a
change of the March 4, 2003 date in the AJCA to an earlier date, could result in VistaPrint Limited
being subject to tax in the United States on its worldwide income, which would increase our effective
rate of tax and adversely affect our earnings.
Regardless of the application of AJCA to VistaPrint Limited, the U.S. Internal Revenue Service
could assert that an insufficient amount of tax was paid to the United States federal government in
Form 10-K
33