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Income Taxes | 12 Months Ended
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Sep. 30, 2012
Income Taxes [Text Block] |
7 | Income Taxes
United States Tax China BAK is subject to United States of America tax law. No provision for income taxes in the United States or elsewhere has been made as China BAK had no taxable income for the years ended September 30, 2011 and 2012. The statutory tax rate for each of the years ended September 30, 2011 and 2012 is 35%. Canada States Tax BAK Canada is subject to Canada tax law. No provision for income taxes in Canada has been made as BAK Canada had no taxable income for the years ended September 30, 2011 and 2012. The statutory tax rate for each of the years ended September 30, 2011 and 2012 is 38%. German States Tax BAK Europe is subject to Germany tax law. No provision for income taxes in German has been made as BAK Europe had no taxable income for the years ended September 30, 2011 and 2012. The statutory tax rate for each of the years ended September 30, 2011 and 2012 is 25%. India Tax BAK India is subject to India tax law. No provision for income taxes in India has been made as BAK India had no taxable income for the years ended September 30, 2011 and 2012. The statutory tax rate for each of the years ended September 30, 2011 and 2012 is 30%. Hong Kong Tax BAK International is subject to Hong Kong profits tax rate of 16.5% . Management of BAK International has determined that all income and expenses are offshore and not subject to Hong Kong profits tax. As a result, BAK International did not incur any Hong Kong profits tax during the years presented. PRC Tax Shenzhen BAK and BAK Electronics are both registered and operate in Shenzhen, the PRC, and are each recognized as “Manufacturing Enterprise Located in Special Economic Zone”. As a result, they have been entitled to a preferential enterprise income tax rate of 15%. In accordance with the relevant income tax laws, the profits of Shenzhen BAK and BAK Electronics were fully exempted from income tax for two years from the first profitable calendar year of operations after offset of accumulated taxable losses, followed by a 50% exemption for the immediate next three calendar years (“tax holiday”). According to the transition period of the new corporate income tax law (“New CIT Law”), Shenzhen BAK’s income tax rate for calendar years 2011 and 2012 were 24% and 25%, respectively. On April 18, 2008, the Ministry of Since and Technology (MOST), the Ministry of Finance (MOF), the State Taxation Administration (STA) jointly issued “Measures for Acknowledgement and Determination of New and High Technology Enterprises”. Under the measures, if an enterprise is successfully recognized as a new and high technology enterprise, it is entitled to a preferential enterprise income tax rate of 15%. Shenzhen BAK was recognized as a high technology enterprise on October 31, 2011, as a result, Shenzhen BAK is entitled to a preferential enterprise income tax rate of 15% for each calendar years 2011, 2012 and 2013. BAK Electronics, established in August 2005, was in the tax holiday and fully exempt from any enterprise income tax for calendar years 2006 and 2007 followed by a three-year 50% reduction in its enterprise income tax rate. In addition, pursuant to the transition period of the New CIT Law and before considering the above-mentioned 50% reduction, BAK Electronics’ income tax rates for calendar year 2011 was 24%, and starting in calendar year 2012, it is subject to an income tax rate of 25%. BAK Electronics did not incur any enterprise income tax for the current year due to cumulative tax losses. BAK Tianjin is currently paying no enterprise income tax due to cumulative tax losses. On March 16, 2007, the National People’s Congress of the PRC determined to adopt the New CIT Law. The New CIT Law unifies the application scope, tax rate, tax deduction and preferential policy for both domestic enterprises and FIEs. The New CIT Law became effective on January 1, 2008. According to the New CIT Law, the applicable income tax rate for Shenzhen BAK, BAK Electronics and BAK Tianjin will be 25% after their preferential tax holidays and the transition period have ended. During the transition period, tax rates for subject entities was 18% for the calendar year 2008, and were 20%, 22%, 24% and 25% for the calendar years 2009, 2010, 2011 and 2012, respectively, before the application of applicable tax holidays or other tax preferences.
(a) | Income taxes in the consolidated statements of operations and comprehensive loss
| Income taxes consist of:
|  |  | 2011 |  |  | 2012 |
| Current tax | $ | - |  | $ | 277,136 |
| Deferred tax |  | 1,302,120 |  |  | 2,116,630 |
| Income tax expense | $ | 1,302,120 |  | $ | 2,393,766 |
Substantially all of the Company’s loss before income taxes and related tax benefit are from PRC sources. Actual income tax expense reported in the consolidated statements of operations and comprehensive loss differ from the amounts computed by applying the US statutory income tax rate of 35% to loss before income taxes for the two years ended September 30, 2011and 2012 for the following reasons:
|  |  | 2011 |  |  | 2012 |
| Loss before income taxes | $ | (23,235,244 | ) | $ | (63,413,629 | )
| Computed “expected” income tax expense at 35% |  | (8,132,336 | ) |  | (22,194,770 | )
| Change in the balance of the valuation allowance for deferred tax assets |  | 4,213,529 |  |  | 13,755,316 |
| Foreign tax rate differential |  | 1,118,291 |  |  | 3,231,102 |
| Non-deductible expense |  |  |  |  |  |
| -Share-based compensation |  | 554,454 |  |  | 281,430 |
| -Other non-deductible expenses |  | 3,602,236 |  |  | 7,043,552 |
| (Over)/under-provision in previous year |  | (54,054 | ) |  | 277,136 |
| Actual income tax expense | $ | 1,302,120 |  | $ | 2,393,766 |
Shenzhen BAK and BAK Electronics received no tax benefit pursuant to their tax holiday and preferential tax rate for the years ended September 30, 2011 and 2012 respectively. The significant components of deferred tax expense for the years ended September 30, 2011 and 2012 are as follows:
|  |  | 2011 |  |  | 2012 |
| Deferred tax income | $ | (2,911,409 | ) | $ | (11,638,686 | )
| Valuation allowance for deferred tax assets |  | 4,213,529 |  |  | 13,755,316 |
|  | $ | 1,302,120 |  | $ | 2,116,630 |
(b) | Deferred taxation
| The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of September 30, 2011 and 2012 are presented below:
|  |  | 2011 |  |  | 2012 |
| Deferred tax assets |  |  |  |  |  |
| Short-term |  |  |  |  |  |
| Trade accounts receivable | $ | 6,130,552 |  | $ | 8,651,151 |
| Inventories |  | 1,812,456 |  |  | 3,104,830 |
| Accrued expenses and other payables |  | 537,173 |  |  | 597,130 |
| Valuation allowance |  | (2,479,731 | ) |  | (8,353,068 | )
| Short-term deferred tax assets |  | 6,000,450 |  |  | 4,000,043 |
| Long-term |  |  |  |  |  |
| Property, plant and equipment |  | 2,373,370 |  |  | 4,877,766 |
| Net operating loss carried forward |  | 7,224,830 |  |  | 12,271,943 |
| Valuation allowance |  | (7,849,155 | ) |  | (15,412,728 | )
| Long-term deferred tax assets |  | 1,749,045 |  |  | 1,736,981 |
| Total net deferred tax assets | $ | 7,749,495 |  | $ | 5,737,024 |
| Deferred tax liabilities: |  |  |  |  |  |
| Long-term |  |  |  |  |  |
| Property, plant and equipment | $ | (747,666 | ) | $ | (759,394 | )
| Net deferred tax assets | $ | 7,001,829 |  | $ | 4,977,630 |
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. 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 or are utilized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon an assessment of the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are tested whether they are deductible or can be utilized, management believes that the deferred tax assets as of September 30, 2011 and 2012 are more likely than not to be realized, except for the deferred tax assets relating to the net operating loss carried forward incurred by the Company and its subsidiaries, provision for impairment charge of fixed assets and allowance for trade accounts receivable and obsolete inventories of a subsidiary. In order to fully realize the deferred tax asset of US$772,433 arising from the net operating loss carried forward of US$2,206,951 incurred by the Company itself, the Company will need to generate sufficient future taxable income to cover the above net operating loss carried forward before its expiration in fiscal year 2026 through 2027. As the Company is a non-operating holding company and currently does not expect those unremitted earnings of its foreign subsidiaries to reverse and become taxable to the Company, it is more likely than not that the Company will not realize the benefits of its net operating loss carried forward. Therefore, full valuation allowance of US$772,433 was provided for the deferred tax assets in this respect. In order to fully realize the deferred tax asset of US$2,443,477 arising from the net operating loss carried forward of US$9,773,908 incurred by BAK Electronics and of US$1,602,466 arising from the provision of impairment charge for assets and allowance for trade accounts receivable and obsolete inventories, BAK Electronics will need to generate sufficient future taxable income to cover the above net operating loss carried forward before its expiration in fiscal year 2014 through 2017. In order to fully realize the deferred tax asset of US$5,957,458 arising from the net operating loss carried forward of US$23,829,830 incurred by BAK Tianjin and of US$2,517,143 arising from the provision of impairment charge for assets and obsolete inventories, BAK Tianjin will need to generate sufficient future taxable income to cover the above net operating loss carried forward before its expiration in fiscal year 2014 through 2017. In order to fully realize the deferred tax asset of US$3,098,575 arising from the net operating loss carried forward of US$20,657,167 incurred by Shenzhen BAK and of US$12,351,872 arising from the provision of impairment charge for assets and allowance for trade accounts receivable and obsolete inventories, Shenzhen BAK will need to generate sufficient future taxable income to cover the above net operating loss carried forward before its expiration in fiscal year 2014 through 2017. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if future taxable income decreases.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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