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Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities
 3 Months Ended
Dec. 31, 2013
Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities [Text Block]

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

(a)

Income taxes in the condensed consolidated statements of comprehensive loss

The Company’s provision for income taxes consisted of:

    Three months ended December 31,  
    2012     2013  
Income tax:            
Current $ 32,006   $ 16,474  
Deferred   -     -  
             
  $ 32,006   $ 16,474  

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 three months ended December 31, 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 ended December 31, 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 ended December 31, 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 ended December 31, 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 ended December 31, 2012 and 2013.

BAK Electronics, BAK Tianjin, BAK Dalian and Dalian BAK Power 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:

    Three months ended December 31,  

 

   2012     2013  

Loss before income taxes

 $ (28,133,743 ) $ (5,265,568 )

United States federal corporate income tax rate

   35%     35%  

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

   (9,846,810 )   (1,842,949 )

Reconciling items:

            

   Valuation allowance on deferred tax assets

   608     944,724  

   Loss not recognized as deferred tax assets

   3,650,361     -  

   Rate differential for PRC earnings

   5,335,367     496,558  

   Non-deductible expenses

   636,970     402,733  

   Share based payments

   42,366     15,408  

   Under-provision in prior years

   213,144     -  

Provision for income taxes

$ 32,006   $ 16,474  

As of September 30, 2013 and December 31, 2013, the Company’s U.S. entity, had net operating loss carry forwards of $2,511,374 and $2,625,475 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 $105,668,004 and $110,282,840 which will expire 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, 2013 and December 31, 2013 are presented below:

    September 30,     December 31,  
    2013     2013  

Deferred tax assets

           

   Short-term

            

           Trade accounts receivable

 $ 5,530,324   $ 4,987,951  

           Inventories

   5,365,802     5,589,784  

           Accrued expenses and other payables

   865,002     947,869  

           Valuation allowance

   (11,761,128 )   (11,525,604 )

   Short-term deferred tax assets

   -     -  

   Long-term

            

               Property, plant and equipment

   17,826,415     17,689,741  

               Net operating loss carried forward

   26,833,658     28,180,049  

               Valuation allowance

   (44,660,073 )   (45,869,790 )

   Long-term deferred tax assets

   -     -  

Total net deferred tax assets

 $   -   $   -  

Deferred tax liabilities:

           

   Long-term

            

               Property, plant and equipment

 $ (779,814 ) $ (788,458 )

Net deferred tax liabilities

$ (779,814 ) $ (788,458 )

As of September 30, 2013 and December 31, 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 three months ended December 31, 2012 and 2013, and no provision for interest and penalties is deemed necessary as of December 31, 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.