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Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities
 9 Months Ended
Jun. 30, 2013
Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities [Text Block]

15. Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities

(a) Income taxes in the consolidated statements of comprehensive loss

The Company’s provision for income taxes consisted of:

    For the Three Months     For the Nine Months  
    ended June 30,     ended June 30,  
    2012     2013     2012     2013  
                         
PRC income tax:                        
Current $ 274,055   $ 32,777   $ 274,055   $ 277,599  
Deferred   581     25,228     2,122,437     5,806,678  
                         
  $ 274,636   $ 58,005   $ 2,396,492   $ 6,084,277  

United States Tax

China BAK is subject to statutory tax rate of 35% under 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 three months and nine months ended June 30, 2012 and 2013.

Canada States Tax

BAK Canada is subject to statutory tax rate of 38% under Canada tax law. No provision for income taxes in Canada has been made as BAK Canada had no taxable income for the three months and nine months ended June 30, 2012 and 2013.

German States Tax

BAK Europe is subject to 25% statutory tax rate under Germany tax law.

India Tax

BAK India is subject to 30% statutory tax rate under India tax law. No provision for income taxes in India has been made as BAK India had no taxable income for the three months and nine months ended June 30, 2012 and 2013.

Hong Kong Tax

BAK International is subject to Hong Kong profits tax rate of 16.5% . There is no taxable income for BAK International for the three months and nine months ended June 30, 2012 and 2013, thus BAK International did not incur any Hong Kong profits tax during the periods presented.

PRC Tax

Shenzhen BAK is entitled to a preferential enterprise income tax rate of 15% for the three months and nine months ended June 30, 2012 and 2013.

BAK Electronics and BAK Tianjin are subject to an income tax rate of 25%. BAK Electronics and BAK Tianjin did not incur any enterprise income tax for the current year due to cumulative tax losses.

A reconciliation of the provision for income taxes determined at the statutory income tax to the Company's income tax expenses as follows:

    For the Three Months     For the Nine Months  
    ended June 30,     ended June 30,  

 

   2012     2013     2012     2013  

 

                        

Loss before income taxes

 $ (27,321,424 ) $ (10,212,676 ) $ (42,647,370 ) $ (52,040,531 )

 

                        

United States federal corporate income tax rate

   35%     35%     35%     35%  

Income tax computed at United States statutory corporate income tax rate

   9,562,498     3,574,437     14,926,580     18,214,186  

Reconciling items:

                        

Rate differential for PRC earnings

   (4,591,110 )   (1,720,900 )   (6,215,641 )   (9,782,790 )

Loss not recognized as deferred tax assets

   (5,369,749 )   (1,857,614 )   (8,755,414 )   (8,390,716 )

Valuation allowance on deferred tax assets

   (571 )   (25,228 )   (2,122,437 )   (5,806,678 )

Share based payment

   (152,840 )   (27,770 )   (229,580 )   (104,205 )

Under-provision in prior year

   277,136     (930 )   -     (214,074 )

Income tax expenses

$ (274,636 ) $ (58,005 ) $   (2,396,492 ) $ (6,084,277 )

As of September 30, 2012 and June 30, 2013, the Company’s U.S. entity, had net operating loss carry forwards of $2,206,951 and $3,070,815, respectively, available to reduce future taxable income which will expire in various years through 2030 and the Company’s PRC subsidiaries had net operating loss carry forwards of $54,260,905 and $105,091,914 which will expires in various years through 2018. Management believes it is more likely than not that the Company will not realize these potential tax benefits as these operations will not generate any operating profits in the foreseeable future. As a result, the full amount of the valuation allowance was provided against the potential tax benefits.

(b) Deferred tax assets and deferred tax liabilities

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of September 30, 2012 and June 30, 2013 are presented below:

    September 30,     June 30,  

 

   2012     2013  
             

Deferred tax assets

           

   Short-term

            

   Trade accounts receivable

 $ 8,651,151   $ 12,620,720  

   Inventories

   3,104,830     5,446,517  

   Accrued expenses and other payables

   597,130     743,729  

   Valuation allowance

   (8,353,068 )   (18,810,966 )

   Short-term deferred tax assets

   4,000,043     -  

   Long-term

            

   Property, plant and equipment

   4,877,766     6,656,563  

   Net operating loss carried forward

   12,271,943     20,542,225  

   Valuation allowance

   (15,412,728 )   (27,198,788 )

   Long-term deferred tax assets

   1,736,981     -  

Total net deferred tax assets

 $ 5,737,024   $   -  

Deferred tax liabilities:

           

   Long-term

            

   Property, plant and equipment

 $ (759,394 ) $ (777,769 )

Net deferred tax liabilities

$ (759,394 ) $ (777,769 )