XML 87 R23.htm IDEA: XBRL DOCUMENT
v2.4.0.8

Note 17 - Taxation | 12 Months Ended
--- | ---
Dec. 31, 2013
Taxation Disclosure [Abstract] |
Taxation Disclosure [Text Block] |
17. | Taxation
| 1) | Income tax
The entities within the Company file separate tax returns in the respective tax jurisdictions in which they operate. i). The Company is incorporated in the state of Nevada. Under the current law of Nevada, the Company is not subject to state corporate income tax. Following the Share Exchange, the Company became a holding company and does not conduct any substantial operations of its own. No provision for federal corporate income tax has been made in the financial statements as the Company has no assessable profits for the year ended December 31, 2013, or any prior periods. The Company does not provide for U.S. taxes or foreign withholding taxes on undistributed earnings from its non-U.S. subsidiaries because such earnings are intended to be reinvested indefinitely. If undistributed earnings were distributed, foreign tax credits could become available under current law to reduce the resulting U.S. income tax liability. ii). China Net BVI was incorporated in the British Virgin Islands (“BVI”). Under the current law of the BVI, China Net BVI is not subject to tax on income or capital gains. Additionally, upon payments of dividends by China Net BVI to its shareholders, no BVI withholding tax will be imposed. iii). China Net HK was incorporated in Hong Kong and does not conduct any substantial operations of its own. No provision for Hong Kong profits tax has been made in the financial statements as China Net HK has no assessable profits for the year ended December 31, 2013 or any prior periods. Additionally, upon payments of dividends by China Net HK to its shareholders, no Hong Kong withholding tax will be imposed. iv). The Company’s PRC operating subsidiary and VIEs, being incorporated in the PRC, are governed by the income tax law of the PRC and is subject to PRC enterprise income tax (“EIT”). The EIT rate of PRC is 25%, which applies to both domestic and foreign invested enterprises.
| l | Rise King WFOE is a software company qualified by the related PRC governmental authorities and was approved by the local tax authorities of Beijing, the PRC, to be entitled to a two-year EIT exemption from its first profitable year and a 50% reduction of its applicable EIT rate, which is 25% to 12.5% of its taxable income for the succeeding three years. Rise King WFOE had a net loss for the year ended December 31, 2008 and its first profitable year was fiscal year 2009 which has been verified by the local tax bureau by accepting the application filed by the Company. Therefore, it was approved to be entitled to a two-year EIT exemption for fiscal year 2009 through fiscal year 2010 and a 50% reduction of its applicable EIT rate which is 25% to 12.5% for fiscal year 2011 through fiscal year 2013. Therefore, for the years ended December 31, 2013 and 2012, the applicable income tax rate for Rise King WFOE was both 12.5%. After fiscal year 2013, the applicable income tax rate for Rise King WFOE will be 25% under the current EIT law of PRC.
| l | Business Opportunity Online was approved by the related PRC governmental authorities as a High and New Technology Enterprise under the current EIT law, and was approved by the local tax authorities of Beijing, the PRC, to be entitled to a favorable statutory tax rate of 15% until December 31, 2014. Therefore, for the years ended December 31, 2013 and 2012, the applicable income tax rate of Business Opportunity Online was both 15%. After fiscal year 2014, the applicable income tax rate for Business Opportunity Online will be 25% under the current EIT law of PRC unless the entity regains the qualification as a High and New Technology Enterprise in fiscal 2015. The Company believes that more likely than not Business Opportunity Online will be able to regain its qualification as a High and New Technology Enterprise and continue to enjoy the favorable statutory tax rate of 15% after fiscal 2014.
| l | Business Opportunity Online Hubei was incorporated in Xiaotian Industrial Park of Xiaogan Economic Development Zone in Xiaogan City, Hubei province of the PRC in 2011. On June 15, 2012, Business Opportunity Online Hubei was approved by the related PRC governmental authorities to be qualified as a software company and was approved by the local tax authorities of Xiaogan City, Hubei province, the PRC, to be entitled to a two-year EIT exemption from its first profitable year, and a 50% reduction of its applicable EIT rate which is 25% to 12.5% of its taxable income for the succeeding three years. Based on the previous communication between the entity and the local tax authorities of Xiaogan Economic Development Zone, the entity is entitled to a two-year EIT exemption for fiscal 2012 and 2013, and a 50% reduction of its applicable EIT rate which is 25% to 12.5% of its taxable income for the succeeding three years until December 31, 2016. However, during the periodic administrative review conducted by local tax authorities of Xiaogan Economic Development Zone in early August 2013, the local tax authorities determined that the first profitable year of the entity was fiscal 2011 instead of fiscal 2012, despite the fact that a deemed income tax computation method was adopted by the entity as approved by the local tax authorities previously. The deemed income tax computation method is considered as a special tax computation and collection method as compared to the regular actual income/loss method. Although there is no definite guidance set forth in the current EIT law regard this issue, we believe it may have a favorable impact of the determination of the entity’s first profitable year. Based on the current circumstances, we believe that more likely than not the local tax authorities will determine the first profitable year of Business Opportunity Online Hubei as fiscal 2011, which may result in the increase of the entity’s applicable income tax rate for its fiscal year 2013 to 12.5%. Therefore, the entity accrued its income tax expense based on a 12.5% income tax rate for the year ended December 31, 2013. For the year ended December 31, 2012, the applicable income tax rate of Business Opportunity Online Hubei was nil%. After fiscal 2015, the applicable income tax rate for Business Opportunity Online Hubei will be 25% under the current EIT law of PRC.
| l | The applicable income tax rate for other PRC operating entities of the Company is 25% for the years ended December 31, 2013 and 2012.
| l | The current EIT law also imposed a 10% withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company outside China. A lower withholding tax rate will be applied if there is a tax treaty arrangement between mainland China and the jurisdiction of the foreign holding company. Holding companies in Hong Kong, for example, will be subject to a 5% withholding tax rate. Rise King WFOE is invested by immediate holding company in Hong Kong and will be entitled to the 5% preferential withholding tax rate upon distribution of the dividends to its immediate holding company.
For the years ended December 31, 2013 and 2012, all of the preferential income tax treatments enjoyed by the Company’s PRC subsidiary and VIEs were based on the current applicable laws and regulations of the PRC and approved by the related government regulatory authorities and local tax authorities where the Company’s respective PRC subsidiary and VIEs operate in. Rise King WFOE, Business Opportunity Online and Business Opportunity Online Hubei were most affected by these preferential income tax treatments within the structure of the Company. The preferential income tax treatments are subject to change in accordance with the PRC government economic development policies and regulations. These preferential income tax treatments are primarily determined by the regulation and policies of the PRC government in the context of the overall economic policy and strategy. As a result, the uncertainty of theses preferential income tax treatments are subject to, but not limited to, the PRC government policy on supporting any specific industry’s development under the outlook and strategy of overall macroeconomic development.
| 2) | Turnover taxes and the relevant surcharges
From January 1, 2012 through August 31, 2012 (for the Company’s PRC operating entities incorporated in Beijing) or October 31, 2012 (for the Company’s PRC operating entities incorporated in Fujian province) or November 30, 2012 (for the Company’s PRC operating entities incorporated in Hubei province), revenue from advertising services is subject to 5.6%-5.7% business tax (including surcharges), depending on which tax jurisdiction the Company’s PRC operating subsidiary and VIE operate in, and 3% cultural industry development surcharge of the net service income after deducting amount paid to ending media promulgators. Revenue from internet technical services was subjected to 5.6%-5.7% business tax (including surcharges), depending on which tax jurisdiction the Company’s PRC operating subsidiary and VIE operate in. On July 31, 2012, the Ministry of Finance (the “MOF”) and the State Administration of Taxation (the “SAT”) of the PRC jointly promulgated a “Circular on Launching the Pilot Collection of Value Added Tax in lieu of Business Tax in Transportation and Certain Areas of Modern Services Industries in Eight Provinces and Municipalities Including Beijing” (“Circular Cai Shui [2012] No. 71”), pursuant to which a business tax to value added tax (the “VAT”) transformation pilot program was launched. The implementation date for Beijing is September 1, 2012, for Fujian province, November 1, 2012, and for Hubei province, December 1, 2012. Other circulars such as “Circular on Carrying out the Pilot Collection of Value Added Tax in Lieu of Business Tax to be imposed on Transportation Industry and Part of Modern Services Industry in Shanghai” (“Circular Cai Shui [2011] No. 111”) jointly promulgated by the MOF and the SAT on November 16, 2011 which contains detailed implementation measures for such VAT pilot program apply to the locations including Beijing, Fujian province and Hubei province. In accordance with the Circular Cai Shui [2011] No. 111, the VAT rate for provision of modern services (other than lease of corporeal movables) is 6% and for small scale taxpayer, 3%. Therefore, beginning on September 1, 2012, for the Company’s PRC operating subsidiary and VIEs incorporated in Beijing, November 1, 2012, for the Company’s PRC operating VIEs incorporated in Fujian province, and December 1, 2012, for the Company’s PRC operating VIEs incorporated in Hubei province, service revenues are subject to VAT at a rate of 6%, after deducting the VAT paid for the services purchased from suppliers, or at a rate of 3% without any deduction of VAT paid for the services purchased from suppliers. The surcharges of the VAT is 12%-14% of the VAT, depending on which tax jurisdiction the Company’s PRC operating subsidiary and VIE operate in. Business tax is a price including tax in the PRC turnover tax system, which is calculated based on the revenue inclusive of turnover tax. Therefore, revenues achieved by the Company which are subject to business tax are presented on a gross basis inclusive of business tax, because the Company is considered to serve as the primary obligor, and on the other hand, business tax was included in cost of revenues upon recognition of business tax payable simultaneously with the recognition of revenue. Contrastively, VAT is a price excluding tax in the PRC turnover tax system, which is calculated based on the revenue exclusive of turnover tax. Therefore, revenues achieved by the Company which are subject to VAT are presented on a net basis exclusive of VAT, because customers who purchase the services from the Company is considered to serve as the primary obligor, and VAT received from customers excluded from revenue is recognized as the output VAT upon recognition of revenue. VAT payable on taxable services provided by a general VAT taxpayer for a taxable period is the net balance of the output VAT for the period after crediting the balance of input VAT (VAT paid for the services purchased from suppliers). Hence, the amount of VAT payable does not result directly from output VAT generated from taxable services provided. As of December 31, 2013 and 2012, taxes payable consists of:
|  | As of December 31, |
|  | 2013 |  |  | 2012 |
|  | US$(’000) |  |  | US$(’000) |
Turnover tax and surcharge payable |  |  | 2,343 |  |  |  | 2,609 |
Enterprise income tax payable |  |  | 4,686 |  |  |  | 4,074 |
|  |  | 7,029 |  |  |  | 6,683 |
A reconciliation of the provision for income tax expense determined at the U.S. federal corporate income tax rate to the Company’s effective income tax expense is as follows:
|  | Year Ended December 31, |
|  | 2013 |  |  | 2012 |
|  | US$(’000) |  |  | US$(’000) |
Pre-tax income |  |  | 716 |  |  |  | 4,386 |
U.S. federal rate |  |  | 35 | % |  |  | 35 | %
Income tax expense computed at U.S. federal rate |  |  | 251 |  |  |  | 1,535 |
Reconciling items: |  |  |  |  |  |  |  |
Rate differential for domestic earnings |  |  | (119 | ) |  |  | (537 | )
Preferential tax treatments and tax holiday effects |  |  | (754 | ) |  |  | (1,039 | )
Change in tax rate for loss recognized as deferred tax assets |  |  | (144 | ) |  |  | - |
Valuation allowance on deferred tax assets |  |  | 1,426 |  |  |  | 512 |
Loss not recognized as deferred tax assets |  |  | 2 |  |  |  | 3 |
Non-deductible expenses and non-taxable income |  |  | 154 |  |  |  | 55 |
Effective income tax expense |  |  | 816 |  |  |  | 529 |
For the years ended December 31, 2013 and 2012, the Company’s income tax benefit / (expense) consisted of:
|  | Year Ended December 31, |
|  | 2013 |  |  | 2012 |
|  | US$(’000) |  |  | US$(’000) |
Current-PRC |  |  | (1,302 | ) |  |  | (1,357 | )
Deferred-PRC |  |  | 486 |  |  |  | 828 |
|  |  | (816 | ) |  |  | (529 | )
The Company’s deferred tax liabilities at December 31, 2013 and changes for the two years then ended were as follows:
|  | Amount |
|  | US$(’000) |
Balance as of December 31, 2011 |  |  | 1,893 |
Reversal during the period |  |  | (219 | )
Exchange translation adjustment |  |  | 15 |
Balance as of December 31, 2012 |  |  | 1,689 |
Reversal during the period |  |  | (306 | )
Exchange translation adjustment |  |  | 56 |
Balance as of December 31, 2013 |  |  | 1,439 |
Deferred tax liabilities arose on the recognition of the identifiable intangible assets acquired from acquisition transactions and deconsolidation of subsidiaries consummated in 2011. Reversal for the years ended December 31, 2013 and 2012 of approximately US$226,000 and US$219,000, respectively, was due to amortization of the acquired intangible assets. Additional reversal of approximately US$80,000 was due to disposal of trade name upon disposal of the 100% equity interest in Quanzhou Zhi Yuan and Quanzhou Tian Xi Shun He in November 2013. The Company’s deferred tax assets at December 31, 2013 and December 31, 2012 were as follows:
|  | As of December 31, |
|  | 2013 |  |  | 2012 |
|  | US$(’000) |  |  | US$(’000) |
Tax effect of net operating losses carried forward |  |  | 3,899 |  |  |  | 2,929 |
Bad debts provision |  |  | 1,594 |  |  |  | 824 |
Valuation allowance |  |  | (4,581 | ) |  |  | (3,051 | )
|  |  | 912 |  |  |  | 702 |
|  | As of December 31, |
|  | 2013 |  |  | 2012 |
|  | US$(’000) |  |  | US$(’000) |
Deferred tax assets reclassified as current asset |  |  | 153 |  |  |  | 50 |
Deferred tax assets reclassified as non-current asset |  |  | 759 |  |  |  | 652 |
|  |  | 912 |  |  |  | 702 |
The net operating losses carried forward incurred by the Company (excluding its PRC operating subsidiary and VIEs) were approximately US$6,840,000 and US$6,363,000 at December 31, 2013 and 2012, respectively, which loss carry forwards gradually expire over time, the last of which expires in 2033. A full valuation allowance has been recorded because it is considered more likely than not that the deferred tax assets will not be realized through sufficient future earnings of the entity to which the operating losses relate. The net operating losses carried forward (excluding bad debts provision and non-deductible expenses) incurred by the Company’s PRC subsidiary and VIEs were approximately US$7,253,000 and US$4,093,000 at December 31, 2013 and 2012, respectively, which loss carry forwards gradually expire over time, the last of which expires in 2018. The related deferred tax assets was calculated based on the respective net operating losses incurred by each of the PRC subsidiary and VIEs and the respective corresponding enacted tax rate that will be in effect in the period in which the losses are expected to be utilized. The Company recorded approximately US$585,000 and US$nil valuation allowance for the years ended December 31, 2013 and 2012, respectively, because it is considered more likely than not that this portion of the deferred tax assets will not be realized through sufficient future earnings of the entities to which the operating losses relate. Full valuation allowance to bad debts provision related deferred tax assets were recorded because it is considered more likely than not that this portion of deferred tax assets will not be realized through bad debts verification by the local tax authorities where the PRC subsidiary and VIEs operate in. The Company’s non-current portion of deferred tax assets and deferred tax liabilities were attributable to different tax-paying components of the entity, which were under different tax jurisdictions. Therefore, in accordance with ASC Topic 740 “Income taxes”, the non-current portion of deferred tax assets and deferred tax liabilities were presented separately in the Company’s balance sheets. The tax authority of the PRC government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after those enterprises had completed their relevant tax filings, hence the Company’s tax filings may not be finalized. It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s tax filings which may lead to additional tax liabilities.

X
- Definition The entire disclosure for income taxes and other tax obligations. Disclosures may include income tax policies in respective tax jurisdictions where an enterprise's subsidiaries operate, net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, tax uncertainties information, and descriptions and amounts of other tax obligations. + References No definition available. + Details
Name: | cnet_TaxationDisclosureTextBlock
Namespace Prefix: | cnet_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- Details
Name: | cnet_TaxationDisclosureTextBlockAbstract
Namespace Prefix: | cnet_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration