With respect to the shares of a PFIC that you hold in your tax-deferred accounts, there is no special impact because of the company's status as a PFIC. As with any other foreign stock or U.S. exchange traded ADS shares, foreign taxes withheld on shares held in a tax-deferred account are not eligible to be claimed for the foreign taxes paid credit.
However, with respect to the shares you hold in taxable accounts, there are significant ramifications. Generally, if you hold shares in a foreign company that is classified as a PFIC in any year, and you do not make an IRC Sec. 1296 mark-to-market election, then the dividends you receive will be taxed as ordinary income (i.e. not eligible to be treated as qualified dividends subject to a 15% tax rate cap) and any gains realized on the sale of the shares will also be treated as ordinary income. Further, any losses realized on the sale of the shares will not be deductible. Further, the amount of the income tax incurred on the dividends and gains on sale, will be increased by an interest charge to compensate for an assumed tax deferral associated with PFIC's, calculated as if the excess distributions (i.e. the dividends and gains) had been earned ratably over the period the U.S. holder held its ordinary shares or ADSs. Classification as a PFIC may also have other adverse tax consequences, including the denial of a step-up in the basis of ordinary shares and ADSs at death.
You can avoid most of the unfavorable rules described above by electing under IRC Sec. 1296 to mark your ADS's to market. For any year in which you own a company that is a PFIC and if you make a mark-to-market election, you will include as ordinary income the excess of the fair market value of the ADS's at year-end over your cost basis in those ADSs. In addition, any gain recognized upon an actual sale of ordinary shares or ADSs would be taxed as ordinary income in the year of sale. For any year in which your cost basis exceeds the fair market value of the ADS's, you may deduct the loss to the extent you previously recognized ordinary income under this IRC Sec. 1296 election. Each year in which you recognize ordinary income as a result of the mark-to-market rules, you will increase your cost basis by alike amount. Each year you recognize a loss as a result of the mark-to-market rules, you will decrease your basis by a like amount. As a result of making the election, any dividends you receive will generally be considered to be qualified dividends subject to a max tax rate of 15% unless otherwise specified by the Company. Also, any foreign taxes withheld will be eligible for the foreign taxes paid credit. Further, for any year in which the Company is no longer a PFIC and in which you sell the ADS shares, any gain or loss will be eligible for capital gain or loss treatment.
You make an IRC Sec. 1296 election by checking the box on line F of Part I of form 8621, (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) and reports the gain or loss on Part III of the form. See www.irs.gov for the form. You may make the election for 2004 up to the due date (including extentions) for filing your return (i.e. so your not late, good job filing for the extension). Once you make this election it is irrevocable unless the Company's ADS shares become unmarketable or the IRS allows you to teerminate the election. Thus, even if the Company ceases to to be a PFIC, you will still be required to mark-to-market. The IRS will likely agree to terminate your Sec. 1296 election once the Company determines it will likely no longer be a PFIC.
The reason these rules are in place is as a result of a lot of abuse by offshore investors. I suggest you dump this stock unless you really like them and are willing to put up with the hassel. I reviewed th 20-F and it appears to me that the Sec. 1296 is your best bet. The Company does not appear to be forthcoming with the information required to make a "QEF" election under Sec. 1295 (not that its much of an improvement) and you can not force them to provide you the info.