18. INCOME TAXES

The provision for income taxes is comprised of the following:

	Years Ended December 31,
	2013			2014			2015
	$			$			$
Income before Income Taxes
Canada		41,700			248,666			79,631
Other		11,504			72,652			143,197

		53,204			321,318			222,828


Current Tax
Canada		1,695			17,721			71,002
Other		9,989			29,018			67,351

		11,684			46,739			138,353


Deferred Tax
Canada		11,493			40,895			(44,548	)
Other		(15,538	)		(10,203	)		(44,293	)

		(4,045	)		30,692			(88,841	)


Total Income Tax (Benefit) Expense
Canada		13,188			58,616			26,454
Other		(5,549	)		18,815			23,058

		7,639			77,431			49,512

The Company mainly operates in Canada, PRC, Japan, Germany, the United States and Hong Kong.

Canada

The Company was incorporated in Ontario, Canada and is subject to both federal and Ontario provincial corporate income taxes at a rate of 26.5% for the years ended December 31, 2013, 2014 and 2015.

Canadian Solar Solutions Inc. was incorporated in Ontario, Canada and is subject to both federal and Ontario provincial corporate income taxes at a rate of 26.5%, 25% and 25% for the years ended December 31, 2013, 2014 and 2015, respectively.

United States

Canadian Solar (USA) Inc. was incorporated in Delaware, USA and is subject to federal, California, and other states' corporate income taxes at a rate of 38.10%, 37.95% and 38.56% for the years ended December 31, 2013, 2014 and 2015, respectively.

Japan

Canadian Solar Japan K.K. was incorporated in Japan and is subject to Japanese corporate income taxes at a normal statutory rate of approximately 38.01%, 35.64% and 35.64% for the years ended December 31, 2013, 2014 and 2015, respectively.

Germany

Canadian Solar EMEA GmbH was incorporated in Munich, Germany and is subject to German corporate income tax at a rate of approximately 33% for the years ended December 31, 2013, 2014 and 2015, respectively.

Hong Kong

Canadian Solar International Ltd. ("HKSI") was incorporated in Hong Kong, China, and is subject to Hong Kong profits tax at a rate of 16.5% for the years ended December 31, 2013, 2014 and 2015, respectively.

PRC

The other major operating subsidiaries, including CSI Solartronics (Changshu) Co., Ltd., CSI Solar Technologies Inc., CSI Cells Co., Ltd., Canadian Solar Manufacturing (Luoyang) Inc., CSI Solar Power (China) Inc. and Canadian Solar Manufacturing (Changshu) Inc., and Suzhou Sanysolar Materials Technology Co., Ltd. were governed by the PRC Enterprise Income Tax Law ("new EIT Law").

Under the new EIT Law, both foreign-invested enterprises and domestic enterprises are subject to a uniform enterprise income tax rate of 25%. The new EIT Law also provides a five-year transition period for those enterprises established before the promulgation date of the new EIT Law and were entitled to preferential tax treatment under the previous tax law. Enterprises that were subject to an enterprise income tax rate lower than 25% will have the new uniform enterprise income tax rate of 25% phased in over a five-year period from the effective date of the EIT Law. Enterprises that were entitled to exemptions or reductions from the standard income tax rate for a fixed term may continue to enjoy such treatment until the fixed term expires, subject to certain limitations.

Accordingly, the enterprise income tax rates applicable to the Company's major operating subsidiaries in China are summarized as follows:

Company		Applicable enterprise income tax rate under the new EIT Law
CSI Solartronics (Changshu) Co., Ltd.		25%
CSI Solar Technologies Inc.		25% for 2013 and onwards; 12.5% for 2012 (half reduction of 25%)
CSI Cells Co., Ltd.		25% for 2013 and onwards; 15% for 2012 resulting from its High and New Technology Enterprise ("HNTE") status
Canadian Solar Manufacturing (Luoyang) Inc.		25% for 2012 and onwards;
Canadian Solar Manufacturing (Changshu) Inc.		25% for 2013 and onwards; 12.5% for 2012 (half reduction of 25%)
CSI Solar Power (China) Inc.		25%
Suzhou Sanysolar Materials Technology Co., Ltd.		15% for 2015, 2014 and 2013 resulting from its HNTE status; 25% for 2012

The Company makes an assessment of the level of authority for each of its uncertain tax positions (including the potential application of interest and penalties) based on their technical merits, and has measured the unrecognized benefits associated with such tax positions. This liability is recorded as liability for uncertain tax positions in the consolidated balance sheets. In accordance with its policies, the Company accrues and classifies interest and penalties associated with such unrecognized tax benefits as a component of its income tax provision. The amount of interest and penalties accrued as of December 31 2014 and 2015 was $4,735 and $4,978, respectively. The Company does not anticipate any significant changes to its liability for unrecognized tax positions within the next 12 months.

The following table illustrates the movement and balance of the Company's liability for uncertain tax positions (excluding interest and penalties) for the years ended December 31, 2013, 2014 and 2015, respectively.

	Years Ended December 31,
	2013			2014			2015
	$			$			$
Beginning balance		11,242			13,001			10,844
Addition for tax positions related to the current year		2,403			—			196
Reductions for tax positions from prior years/Statute of limitations expirations		—			(1,368	)		—
Foreign exchange effect		(644	)		(789	)		(1550	)

Ending balance		13,001			10,844			9,490

The Company is subject to taxation in various jurisdictions where it operates, mainly including Canada and China. Generally, the Company's taxation years from 2007 to 2014 are open for reassessment to the Canadian tax authorities. The Company's taxation years from 2005 through 2015 are subject to examination by the Chinese tax authorities due to its permanent establishment in China.

According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of income taxes has resulted from the computational errors of the taxpayer. The statute of limitations could be extended to five years under special circumstances. Though not being clearly defined, a special circumstance would suffice where any underpayment of income taxes exceeds RMB100. For income tax adjustments relating to transfer pricing matters, the statute of limitations is ten years. Therefore, the Company's Chinese subsidiaries might be subject to reexamination by the Chinese tax authorities on non-transfer pricing matters for taxation years up to 2010 retrospectively, and on transfer pricing matters for taxation years up to 2005 retrospectively. There is no statute of limitations in case of tax evasion in China.

The components of the deferred tax assets and liabilities are presented as follows:

	At December 31, 2014			At December 31, 2015
	$			$
Deferred tax assets:
Accrued warranty costs		10,509			10,548
Bad debt allowance		9,318			8,358
Issuance costs		1,597			1,123
Inventory write-down		5,308			4,239
Future deductible expenses		—			13,878
Depreciation and impairment difference of property, plant and equipment, solar power system		26,149			34,248
Accrued liabilities related to countervailing and anti-dumping duty deposits		13,850			55,115
Deferred tax assets relating to sale of solar power systems		21,097			32,159
Net operating losses carry-forward		65,876			70,637
Others		6,947			7,409

Total deferred tax assets, gross		160,651			237,714
Valuation allowance		(52,985	)		(55,959	)

Total deferred tax assets, net of valuation allowance		107,666			181,755


Deferred tax liabilities:
Foreign currency derivative assets		1,167			4,558
Depreciation difference of property, plant and equipment		5,264			8,327
Deferred profit of projects		70,360			40,793
Basis difference related to acquisitions		26,459			18,339
Others		1,806			3,047

Total deferred tax liabilities, gross		105,056			75,064


Net deferred tax assets (liabilities)		2,610			106,691


Analysis as:
Current deferred tax assets		40,810			30,013
Non-current deferred tax assets		66,856			97,134
Current deferred tax liabilities		94,711			1,426
Non-current deferred tax liabilities		10,345			19,030

Net deferred tax assets (liabilities)		2,610			106,691

Movement of the valuation allowance is as follows:

	Years Ended December 31,
	2013			2014			2015
	$			$			$
Beginning balance		54,140			57,190			52,985
Additions (Reversals)		4,671			(4,411	)		(944	)
Addition from acquisition of Recurrent		—			—			4,949
Foreign exchange effect		(1,621	)		206			(1,031	)

Ending balance		57,190			52,985			55,959

As of December 31, 2015, the Company has accumulated net operating losses of $307,550, of which $110,346 will expire between 2016 and 2034, and the remaining can be carried forward indefinitely.

The Company considers positive and negative evidence to determine whether some portion or all of the deferred tax assets will not be realized. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carry-forward periods, the Company's experience with tax attributes expiring unused and tax planning alternatives. The Company has considered the following possible sources of taxable income when assessing the realization of deferred tax assets:


	•	Tax planning strategies;
	•	Future reversals of existing taxable temporary differences;
	•	Further taxable income exclusive of reversing temporary differences and carry-forwards;

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible for tax purposes. As a result, the Company has recognized a valuation allowance of $52,985 and $55,959 as at December 31, 2014 and 2015, respectively.

Reconciliation between the provision for income tax computed by applying Canadian federal and provincial statutory tax rates to income before income taxes and the actual provision and benefit for income taxes is as follows:

	Years Ended December 31,
	2013			2014			2015
Combined federal and provincial income tax rate		27	%		27	%		27	%
Effect of permanent difference		—			—			1	%
Effect of different tax rate of subsidiary operations in other jurisdiction		1	%		(2	)%		(3	)%
Unrecognized tax benefits		5	%		—			—
Valuation allowance		5	%		(1	)%		—
Change of tax rates in subsequent years		(23	)%		—			—
Effect of true-up		—			—			(1	)%
Foreign exchange effect		—			—			(2	)%

		15	%		24	%		22	%

In accordance with the EIT Law, dividends, which arise from profits of foreign invested enterprises earned after January 1, 2008, are subject to a 10% withholding income tax. Under applicable accounting principles, a deferred tax liability should be recorded for taxable temporary difference attributable to excess of financial reporting basis over tax basis in the investment in a foreign subsidiary. However, a deferred tax liability is not recognized if the basis difference is not expected to reverse in the foreseeable future and is expected to be permanent in duration. As of December 31, 2015, all of the undistributed earnings of approximately $197.6 million attributable to the Company's PRC subsidiaries and affiliates are considered to be permanently reinvested, and no provision for PRC withholding income tax on dividend has been made thereon accordingly. Upon distribution of those earnings generated after January 1, 2008, in the form of dividends or otherwise, the Company would be subject to the then applicable PRC tax laws and regulations. Distributions of earnings generated before January 1, 2008 are exempt from PRC dividend withholding tax. The amounts of unrecognized deferred tax liabilities for these earnings are in the range of $9.88 million to $19.76 million, as the withholding tax rate of the profit distribution will be 5% or 10% depends on whether the immediate offshore companies can enjoy the preferential withholding tax rate of 5%.