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Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities
 9 Months Ended
Jun. 30, 2014
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 June 30,     Nine Months ended June 30,  
    2013     2014     2013     2014  
PRC income tax:                        
Current $ 32,777   $   -   $ 277,599   $ 16,474  
Deferred   25,228     -     5,806,678     -  
  $ 58,005   $   -   $ 6,084,277   $ 16,474  

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 ended andnine months ended June 30, 2013 and 2014.

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, 2013 and 2014.

German States Tax
BAK Europe is subject to 25% statutory tax rate under Germany tax law for the three months and nine months ended June 30, 2013 and 2014.

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, 2013 and 2014.

Hong Kong Tax
BAK International and China Asia are subject to Hong Kong profits tax rate of 16.5% . There is no taxable income for both companies for the nine months ended June 30, 2013 and 2014, thus both companies 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 and nine months ended June 30, 2013 and 2014.

All the other subsidiaries in China are subject to an income tax rate of 25%.

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

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

 

   Three Months ended June 30,     Nine Months ended June 30,  

 

   2013     2014     2013     2014  

(Loss) profit before income taxes-continuing operations

 $ (10,212,676 )    $(9,829,430 ) $ (52,040,531 ) $ (26,351,675 )

 

                        

United States federal corporate income tax rate

   35%     35%     35%     35%  

Income tax computed at United States statutory corporate income tax rate

   (3,574,437 )   (3,440,301 )   (18,214,186 )   (9,223,086 )

Reconciling items:

                        

Rate differential for PRC earnings

   1,720,899     455,721     9,782,790     2,555,291  

Valuation allowance on deferred tax assets

   1,328,284     2,939,065     7,109,734     6,147,546  

Non-deductible expenses/(non-taxable income)

   554,557     40,430     7,087,660     506,060  

Share based payment

   27,771     5,085     104,205     30,663  

Under-provision in prior year

   931     -     214,074     -  

Income tax expenses

 $ 58,005   $   -   $ 6,084,277   $ 16,474  

As of September 30, 2013 and June 30, 2014, the Company’s U.S. entity, had net operating loss carry forwards of $2,511,374 and $3,354,362, 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 $595,495 which will expire in various years through 2019. 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 June 30, 2014 are presented below:

 

   September 30,2013     June 30, 2014  

Deferred tax assets

            

   Short-term

            

   Trade accounts receivable

 $ 5,530,324   $   -  

   Inventories

   5,365,802     -  

   Accrued expenses and other payables

   865,002     -  

   Valuation allowance

   (11,761,128 )   -  

   Short-term deferred tax assets

   -     -  

 

            

   Long-term

            

      Property, plant and equipment

   17,826,415     -  

      Net operating loss carried forward

   26,833,658     1,322,901  

      Valuation allowance

   (44,660,073 )   (1,322,901 )

   Long-term deferred tax assets

   -     -  

Total net deferred tax assets

 $   -   $   -  

Deferred tax liabilities:

            

Long-term - Property, plant and equipment

 $ (779,814 ) $   -  

Net deferred tax liabilities

 $ (779,814 ) $   -  

As of September 30, 2013 and June 30, 2014, 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 periods ended June 30, 2013 and 2014, and no provision for interest and penalties is deemed necessary as of June 30, 2013 and 2014.

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.