Important Tax Information for US Shareholders
United States Federal Income Tax Considerations for U.S. Shareholders
The following is a general summary of possible United States federal income tax consequences, under current law, generally applicable to a U.S. Shareholder (as defined below). This summary does not address all potentially relevant U.S. federal income tax matters and it does not address consequences to persons subject to special provisions of U.S. federal income tax law, such as those described below as excluded from the definition of a U.S. Shareholder. United States alternative minimum tax considerations are not addressed in this summary. In addition, this summary does not cover any state, local or foreign tax consequences, nor any U.S. federal gift, estate or generation-skipping transfer tax consequences.
The following summary is based upon the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, published administrative positions of the IRS, and court decisions that are currently applicable, any of which could be materially and adversely changed, possibly on a retroactive basis, at any time including, without limitation, United States rates of taxation. This summary does not consider the potential effects, both adverse and beneficial, of any recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time. U.S. Shareholders should note that no rulings have been or will be sought from the IRS with respect to any of the U.S. federal income tax issues discussed in this summary, and that no assurance can be given that the IRS will not successfully challenge the conclusions reached herein.
This summary is for general information only and it is not intended to be, nor should it be construed to be, legal or tax advice to any holder or prospective holder of Common Shares and no opinion or representation with respect to the United States federal income tax consequences to any such holder or prospective holder is made. Accordingly, holders and prospective holders of Common Shares should consult their own tax advisors about the federal (income and non-income) state, local, and foreign tax consequences of purchasing, owning and disposing of Common Shares.
In accordance with Internal Revenue Service Circular 230, we advise you that unless otherwise expressly stated, any discussion of a federal tax issue in this communication or in any attachment is not intended to be used, and it cannot be used, for the purpose of avoiding federal tax penalties.
U.S. Shareholders
As used herein, a “U.S. Shareholder” means a holder of Common Shares who is a citizen or individual resident (as defined under United States tax laws) of the United States; a corporation created or organized in or under the laws of the United States or of any political subdivision thereof; an estate the income of which is taxable in the United States irrespective of source; or a trust if (a) a court within the United States is able to exercise primary supervision over the trust’s administration and one or more United States persons have the authority to control all of its substantial decisions or (b) the trust was in existence on August 20, 1996 and has properly elected to continue to be treated as a United States person. This summary does not address the United States tax consequences to, and the term “U.S. Shareholder” does not include, persons subject to special provisions of federal income tax law, including, but not limited to, tax-exempt organizations, qualified retirement plans, individual retirement accounts and other tax deferred accounts, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals or U.S. expatriates, persons or entities that have a “functional currency” other than the U.S. dollar, persons who hold Common Shares as part of a straddle, hedging or a conversion transaction, and persons who acquire their Common Shares as compensation for services. This summary is limited to U.S. Shareholders who own Common Shares as capital assets and who hold the Common Shares directly (e.g., not through an intermediary entity such as a corporation, partnership, limited liability company, or trust).
United States Federal Income Tax Status of the Corporation
Special United States federal income tax rules apply to U.S. persons owning shares of a Passive Foreign Investment Corporation (“PFIC”). A non-United States corporation generally is classified as a PFIC for United States federal income tax purposes in any taxable year in which, after applying relevant look-through rules with respect to the income and assets of subsidiaries, either: (i) on average at least 50% of the gross value of its assets is attributable to assets that produce passive income or are held for the production of passive income; or (ii) at least75% of its gross income is passive income. Passive income generally includes, among other things, dividends, interest, rents, royalties, gains from the disposition of passive assets and gains from commodities transactions.
If the Corporation or a one of its non-U.S. subsidiaries is classified as a PFIC, a U.S. Shareholder is subject to an increased tax liability in respect of gain recognized on the disposition of Common Shares or upon the receipt of certain distributions. The PFIC tax treatment will not result, however, if the U.S. Shareholder in the first year that the U.S. Shareholder owns the Common Shares (i) makes an election to treat the Corporation as a “qualified electing fund” (“QEF Election”), which results in current taxation to the U.S. Shareholder on its pro rata portion of the Corporation’s income and gain, whether or not such income or gain is distributed in the form of dividends or otherwise, and (ii) the Corporation provides certain annual statements which include the information necessary to determine inclusions and assure compliance with the PFIC and QEF rules. The Corporation intends to supply U.S. Shareholders with the information needed to report income and gain pursuant to a QEF Election, upon request of the U.S. Shareholder.
The QEF Election is made on a shareholder-by-shareholder basis and can be revoked only with the consent of the Internal Revenue Service. A U.S. Shareholder makes a QEF Election by attaching a completed IRS Form 8621 (including the PFIC annual information statement) to a timely filed United States federal income tax return and by filing such form with the IRS Service Center listed on IRS Form 8621. Even if a QEF Election is not made, a shareholder in a PFIC who is a U.S. Holder must file a completed IRS Form 8621 every year.
As an alternative to the QEF Election, a U.S. Shareholder may make a mark-to-market election to include in income each year as ordinary income an amount equal to the increase in value of the Common Shares for that year or to claim a deduction for any decrease in value (but only to the extent of previous mark-to-market gains).
We have determined that the Corporation was likely a PFIC during the tax year ending March 31, 2007. U.S. Shareholders who hold Common Shares during a period when the Corporation is a PFIC will be subject to the foregoing rules, even if the Corporation ceases to be a PFIC in later years. U.S. Shareholders are urged to consult with their own tax advisors about making a QEF Election or mark-to-market election and other aspects of the PFIC rules.