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Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities
 12 Months Ended
Sep. 30, 2013
Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities [Text Block]
16.

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:

      2012     2013  
  PRC income tax:            
  Current $ 277,136   $ 293,678  
  Deferred   2,116,630     5,826,286  
    $ 2,393,766   $ 6,119,964  

United States Tax
China BAK is subject to a 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 years ended September 30, 2012 and 2013.

Canada States Tax
BAK Canada is subject to a 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 years ended September 30, 2012 and 2013.

German States Tax
BAK Europe is subject to a 25% statutory tax rate under Germany tax law.

India Tax
BAK India is subject to a 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 years ended September 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 years ended September 30, 2012 and 2013, thus BAK International did not incur any Hong Kong profits tax during the periods presented.

 

PRC Tax

 

Shenzhen BAK was recognized as a new and high technology enterprise on October 31, 2011 and is entitled to a preferential enterprise income tax rate of 15% for each of the calendar years 2011, 2012 and 2013.

   
 

BAK Electronics and BAK Tianjin are subject to the PRC statutory 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 rate to the Company's provision fo income taxesfollows:

      2012     2013  
               
 

Loss before income taxes

 $ (63,413,629 ) $ (109,909,115 )
 

 

            
 

United States federal corporate income tax rate

   35%     35%  
 

Income tax credit computed at United States statutory corporate income tax rate

   (22,194,770 )   (38,468,190 )
 

Reconciling items:

            
 

Valuation allowance on deferred tax assets

   13,755,316     32,655,405  
 

Rate differential for PRC earnings

   3,231,102     10,496,825  
 

Non-deductible expenses

   7,043,552     1,096,198  
 

Share based payments

   281,430     125,652  
 

Under-provision in prior years

   277,136     214,074  
 

Provision for income taxes

$ 2,393,766   $ 6,119,964  

As of September 30, 2012 and 2013, the Company's U.S. entity had net operating loss carry forwards of $2,206,951 and $2,511,374, 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 $105,668,004 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, a valuation allowance was provided against the full amount of 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, 2013 are presented below:

 

 

   2012     2013  
 

Deferred tax assets

           
 

   Short-term

            
 

   Trade accounts receivable

 $ 8,651,151   $ 5,530,324  
 

   Inventories

   3,104,830     5,365,802  
 

   Accrued expenses and other payables

   597,130     865,002  
 

   Valuation allowance

   (8,353,068 )   (11,761,128 )
 

   Short-term deferred tax assets

   4,000,043     -  
 

   Long-term

            
 

       Property, plant and equipment

   4,877,766     17,826,415  
 

   Net operating loss carried forward

   12,271,943     26,833,658  
 

   Valuation allowance

   (15,412,728 )   (44,660,073 )
 

   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 ) $ (779,814 )
 

Net deferred tax liabilities

$ (759,394 ) $ (779,814 )

 

As of September 30, 2012 and 2013, the Company has no material unrecognized tax benefits which would favorably affect the effective income tax rates in future periods and does not believe that there will be any significant increases or decreases of unrecognized tax benefits within the next twelve months. No interest or penalties relating to income tax matters have been imposed on the Company during the years ended September 30, 2012 and 2013, and no provision for interest and penalties is deemed necessary as of September 30, 2012 and 2013.
   
 

According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or its withholding agent. The statute of limitations extends to five years under special circumstances, which are not clearly defined. In the case of a related party transaction, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion.