Vistaprint 2009 Annual Report Download - page 45

transfer pricing arrangements applicable to our Dutch and French operations, our transfer pricing
arrangements are not binding on applicable tax authorities and no official authority in any other country
has made a determination as to whether or not we are operating in compliance with its transfer pricing
laws. If tax authorities in any country were to successfully challenge our transfer prices as not reflecting
arms’ length transactions, they could require us to adjust our transfer prices and thereby reallocate our
income to reflect these revised transfer prices. A reallocation of taxable income from a lower tax
jurisdiction to a higher tax jurisdiction would result in a higher tax liability to us. In addition, if the
country from which the income is reallocated does not agree with the reallocation, both countries could
tax the same income, resulting in double taxation. Changes in laws and regulations may require us to
change our transfer pricings or operating procedures. If tax authorities were to allocate income to a
higher tax jurisdiction, subject our income to double taxation or assess penalties, it would result in a
higher tax liability to us, which would adversely affect our earnings.
We will pay taxes even if we are not profitable on a consolidated basis which would cause
increased losses and further harm to our results of operations.
The intercompany service and related agreements among Vistaprint N.V. and our direct and
indirect subsidiaries in general guarantee that the subsidiaries realize profits. As a result, even if the
Vistaprint group is not profitable on a consolidated basis, the majority of our subsidiaries will be
profitable and incur income taxes in their respective jurisdictions. If we are unprofitable on a
consolidated basis, as has been the case in some prior periods, this structure will increase our
consolidated losses and further harm our results of operations.
We may not be able to make distributions or repurchase shares without subjecting our
shareholders to Dutch withholding tax.
A Dutch withholding tax may be levied on dividends and similar distributions made by Vistaprint
N.V. to its shareholders at the statutory rate of 15% if we cannot structure the distributions as
distributions made to shareholders in relation to a reduction of par value, which would be non-taxable
for Dutch withholding tax purposes if properly structured. We have in the past, and may in the future,
repurchase outstanding ordinary shares. Under our Dutch Advanced Tax Ruling, a repurchase of
shares should not result in any Dutch withholding tax if we hold the repurchased shares in treasury for
the purpose of issuing shares upon the exercise of certain stock awards and other potential uses.
However, if the shares cannot be used for these purposes, or the Dutch tax authorities challenge the
use of the shares for these purposes, such a repurchase of shares for the purposes of capital reduction
may be treated as a partial liquidation subject to the 15% Dutch withholding tax to be levied on the
difference between our recognized paid in capital for Dutch tax purposes and the redemption price.
We may be treated as a passive foreign investment company for United States tax purposes,
which may subject United States shareholders to adverse tax consequences.
If our passive income, or our assets that produce passive income, exceed levels provided by law
for any taxable year, we may be characterized as a passive foreign investment company, or a PFIC,
for United States federal income tax purposes. If we are treated as a PFIC, U.S. holders of our ordinary
shares would be subject to a disadvantageous United States federal income tax regime with respect to
the distributions they receive and the gain, if any, they derive from the sale or other disposition of their
ordinary shares. Under the PFIC rules, unless U.S. holders make an election available under the
Internal Revenue Code of 1986, as amended, such shareholders would be liable to pay United States
federal income tax at the then prevailing income tax rates on ordinary income plus interest upon
excess distributions and upon any gain from the disposition of our ordinary shares, as if the excess
distribution or gain had been recognized ratably over the shareholder’s holding period of our ordinary
shares.
Form 10-K
39