XML 110 R21.htm IDEA: XBRL DOCUMENT v2.4.1.9
Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities
 12 Months Ended
Sep. 30, 2014
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:

      2013     2014  
  PRC income tax:            
  Current $ 293,678   $ 16,475  
  Deferred   5,826,286     -  
    $ 6,119,964   $ 16,475  

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, 2013 and 2014.

Canada States Tax
 BAK Canada was 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, 2013 and 2014.

German States Tax
 BAK Europe was subject to a 25% statutory tax rate under Germany tax law. No provision for income taxes in Germany has been made as BAK Europe had no taxable income for the years ended September 30, 2013 and 2014.

India Tax
 BAK India was 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, 2013 and 2014.

Hong Kong Tax
 BAK Asia and BAK International are subject to Hong Kong profits tax rate of 16.5% . These two companies did not incur any Hong Kong profits tax during the years ended September 30, 2013 and 2014 as there was no taxable income for BAK Asia and BAK International during these periods.

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 fiscal years 2012, 2013 and is subject to 25% since the fiscal year 2014.

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

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

 

 

   2013     2014  
 

Loss before income taxes - continuing operations

 $ (110,306,631 ) $ (26,705,038 )
 

United States federal corporate income tax rate

   35%     35%  
 

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

   (38,607,321 )   (9,346,763 )
 

Reconciling items:

            
 

Valuation allowance on deferred tax assets

   37,579,296     6,227,021  
 

Rate differential for PRC earnings

   6,753,482     2,574,746  
 

Non-deductible expenses

   54,781     530,410  
 

Share based payments

   125,652     31,061  
 

Under-provision in prior years

   214,074     -  
 

Provision for income taxes

 $ 6,119,964   $ 16,475  

As of September 30, 2013 and 2014, the Company’s U.S. entity had net operating loss carry forwards of $2,511,374 and $35,318,443, respectively, available to reduce future taxable income which will expire in various years through 2034 and the Company’s PRC subsidiaries had net operating loss carry forwards of $105,668,004 and $690,821 which will expires 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, 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, 2013 and, 2014 are presented below:

      2013     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     12,534,160  
 

Valuation allowance

   (44,660,073 )   (12,534,160 )
 

Long-term deferred tax assets

 $   -   $   -  
 

Deferred tax liabilities – Long-term

            
 

Property, plant and equipment

 $ (779,814 ) $   -  

As of September 30, 2013 and 2014, the Company had 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, 2013 and 2014, and no provision for interest and penalties is deemed necessary as of September 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.