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Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities
 6 Months Ended
Jun. 30, 2021
Income Tax Disclosure [Abstract]  
Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities
18. Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities

 

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

 

The Company’s provision for income taxes expenses consisted of:

 

   Three months ended
June 30,		   Six months ended
June 30,		 
   2020   2021   2020   2021 
PRC income tax:                
Current  $
         -
   $
         -
   $
         -
   $
         -
 
Deferred   
-
    
-
    
-
    
-
 
   $
-
   $
-
   $
-
   $
-
 

 

United States Tax

 

CBAK is a Nevada corporation that is subject to U.S. corporate income tax on its taxable income at a rate of up to 21% for taxable years beginning after December 31, 2017 and U.S. corporate income tax on its taxable income of up to 35% for prior tax years. The U.S. Tax Reform signed into law on December 22, 2017 significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transition tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay the one-time transition tax over eight years, or in a single lump sum.

 

The U.S. Tax Reform also includes provisions for a new tax on GILTI effective for tax years of foreign corporations beginning after December 31, 2017. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of controlled foreign corporations (“CFCs”), subject to the possible use of foreign tax credits and a deduction equal to 50 percent to offset the income tax liability, subject to some limitations.

 

The Company’s management is still evaluating the effect of the U.S. Tax Reform on CBAK. Management may update its judgment of that effect based on its continuing evaluation and on future regulations or guidance issued by the U.S. Department of the Treasury, and specific actions the Company may take in the future.

 

To the extent that portions of CBAK’s U.S. taxable income, such as Subpart F income or GILTI, are determined to be from sources outside of the U.S., subject to certain limitations, Sohu.com Inc. may be able to claim foreign tax credits to offset its U.S. income tax liabilities. If dividends that CBAK receives from its subsidiaries are determined to be from sources outside of the U.S., subject to certain limitations, CBAK will generally not be required to pay U.S. corporate income tax on those dividends. Any liabilities for U.S. corporate income tax will be accrued in the Company’s consolidated statements of comprehensive income and estimated tax payments will be made when required by U.S. law.

 

No provision for income taxes in the United States or elsewhere has been made as CBAK had no taxable income for the three and six months ended June 30, 2020 and 2021.

 

Hong Kong Tax 

 

BAK Asia and BAK Investments are subject to Hong Kong profits tax rate of 16.5% and did not have any assessable profits arising in or derived from Hong Kong for the three and six months ended June 30, 2020 and 2021 and accordingly no provision for Hong Kong profits tax was made in these periods.

 

PRC Tax 

 

The CIT Law in China applies an income tax rate of 25% to all enterprises but grants preferential tax treatment to High-New Technology Enterprises. CBAK Power was regarded as a “High-new technology enterprise” pursuant to a certificate jointly issued by the relevant Dalian Government authorities. The certificate was valid for three years commencing from year 2018. Under the preferential tax treatment, CBAK Power was entitled to enjoy a tax rate of 15% for the years from 2019 to 2021 provided that the qualifying conditions as a High-new technology enterprise were met.

 

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

 

    Three months ended
June 30,		     Six months ended
June 30,		  
    2020     2021     2020     2021  
(Loss) Income before income taxes   $ (1,198,167 )   $

2,720,223

     $ (3,552,278 )   $

32,328,391

  
United States federal corporate income tax rate     21 %     21 %     21 %     21 %
Income tax credit computed at United States statutory corporate income tax rate     (251,615 )    

571,247

       (745,978 )    

6,788,962

  
Reconciling items:                                
Rate differential for PRC earnings     (26,214 )    

(96,677

 )     (95,439 )    

(27,673

 )
Non-deductible expenses (non-taxable income)     81,224      

(1,342,568

 )      148,903      

(7,229,358

 ) 
Share based payments     32,332      

19,688

       95,360      

50,940

  
Valuation allowance on deferred tax assets     164,273      

848,310

       597,154      

417,129

  
Income tax expenses   $
-
     $
-
     $
-
     $
-
  

 

  (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 December 31, 2020 and June 30, 2021 are presented below:

 

    December 31,     June 30,  
    2020     2021  
Deferred tax assets            
Trade accounts receivable   $ 1,354,762     $

1,311,220

  
Inventories     575,575      

601,795

  
Property, plant and equipment     1,271,986      

1,193,302

  
Impairment on non-marketable equity securities    
-
      

172,996

  
Provision for product warranty     497,901      

497,846

  
Net operating loss carried forward     31,060,254       31,400,448  
Valuation allowance     (34,760,478 )     (35,177,607 ) 
Deferred tax assets, non-current   $
-
     $
-
  
                 
Deferred tax liabilities, non-current   $
-
     $
           -
  

 

As of December 31, 2020 and June 30, 2021, the Company’s U.S. entity had net operating loss carry forwards of $103,580,741, of which $102,293 available to reduce future taxable income which will expire in various years through 2035 and $103,478,448 available to offset capital gains recognized in the succeeding 5 tax years and the Company’s PRC subsidiaries had net operating loss carry forwards of $37,536,687 and $38,593,969, respectively, which will expire in various years through 2028. 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.

 

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.

 

The impact of an uncertain income tax positions on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes.

 

The significant uncertain tax position arose from the subsidies granted by the local government for the Company’s PRC subsidiary, which may be modified or challenged by the central government or the tax authority. A reconciliation of January 1, 2021 through June 30, 2021 amount of unrecognized tax benefits excluding interest and penalties (“Gross UTB”) is as follows:

 

    Gross UTB     Surcharge     Net UTB  
Balance as of January 1, 2021   $ 7,511,182     $
        -
     $ 7,511,182  
Decrease in unrecognized tax benefits taken in current period     81,408      
-
       81,408  
Balance as of June 30, 2021   $ 7,592,590     $
-
     $ 7,592,590  

 

As of December 31, 2020 and June 30, 2021, the Company had not accrued any interest and penalties related to unrecognized tax benefits.