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INCOME TAX | 9 Months Ended
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Sep. 30, 2012
INCOME TAX [Abstract] |
INCOME TAX | 12. INCOME TAX The Company is governed by the Income Tax Law of the PRC concerning privately-run enterprises, which are generally subject to tax at 25% on income reported in the statutory financial statements after appropriate tax adjustments. Under the Chinese tax law, the tax treatment of finance and sales-type leases is similar to US GAAP. However, the local tax bureau continues to treat CREG sales-type leases as operating leases. Accordingly, the Company recorded deferred income taxes. The Company's subsidiaries generate all of their net income from their PRC operations. Shanghai TCH's effective income tax rates for 2012 and 2011 are 25% and 24%, respectively. Xi'an TCH's effective income tax rate for 2012 and 2011 is 15% as a result of its high tech enterprise status that was approved by the taxing authority. The 2012 rate expired in August 2012. Xingtai Huaxin's effective income tax rate for 2012 and 2011 is 25%. Huahong and Erdos TCH's effective income tax rate for 2012 and 2011 is 25%. Pingshan Shengda's effective income tax rate for 2012 and 2011 is 25% (deregistered in September 2012). Shanghai TCH, Xi'an TCH, Xingtai Huaxin, Huahong, Pingshan Shengda and Erdos TCH file separate income tax returns. If Xi'an TCH had not been granted high tech enterprise status, income tax expense for the nine and three months ended September 30, 2012, would have been increased by $670,757 and $252,561, and earnings per share would have been reduced by $0.01 and $0.005, respectively. There is no income tax for companies domiciled in the Cayman Islands. Accordingly, the Company's consolidated financial statements do not present any income tax provisions related to Cayman Islands tax jurisdiction where Sifang Holding is domiciled. The parent company, China Recycling Energy Corporation, is taxed in the U.S. and, as of September 30, 2012, had net operating loss ("NOL") carry forwards for income taxes of $9.93 million, which may be available to reduce future years' taxable income as NOLs can be carried forward up to 20 years from the year the loss is incurred. Our management believes the realization of benefits from these losses may be uncertain due to the Company's limited operating history and continuing operating losses. Accordingly, a 100% deferred tax asset valuation allowance was provided. The following table reconciles the U.S. statutory rates to the Company's effective tax rate for the nine and three months ended September 30, 2012 and 2011, respectively:
|  | Nine Months |  |  | Three Months |
|  | 2012 |  |  | 2011 |  |  | 2012 |  |  | 2011 |
U.S. statutory rates |  |  | 34.0 | % |  |  | 34.0 | % |  |  | (34.0 | )% |  |  | 34.0 | %
Tax rate difference - current provision |  |  | (14.6 | )% |  |  | (8.1 | )% |  |  | (7.1 | )% |  |  | (6.9 | )%
Effective tax holiday |  |  | (17.3 | )% |  |  | (6.5 | )% |  |  | (45.3 | )% |  |  | (6.7 | )%
Non tax-deductible expense |  |  | 5.5 | % |  |  | 8.6 | % |  |  | 35.6 | % |  |  | 8.3 | %
Valuation allowance on PRC NOL |  |  | 39.3 | % |  |  | 3.6 | % |  |  | 273.1 | % |  |  | 7.6 | %
Valuation allowance on US NOL |  |  | 15.6 | % |  |  | (11.8 | )% |  |  | 43.7 | % |  |  | (16.3 | )%
Tax per financial statements |  |  | 62.5 | % |  |  | 19.8 | % |  |  | 266.0 | % |  |  | 20.0 | %
Non-tax deductible expenses represented permanent non-tax deductible interest expense resulting from an amortization of a beneficial conversion feature for a convertible note and changes in FV of conversion feature liability. The provision for income taxes expenses for the nine and three months ended September 30, 2012 and 2011 consisted of the following:
|  | Nine Months |  |  | Three Months |
|  | 2012 |  |  | 2011 |  |  | 2012 |  |  | 2011 |
Income tax expense - current |  | $ | 851,577 |  |  | $ | 2,353,664 |  |  | $ | 476,567 |  |  | $ | 781,613 |
Income tax expense - deferred |  |  | 1,574,393 |  |  |  | 2,015,593 |  |  |  | 1,007,322 |  |  |  | 1,408,013 |
Total income tax expenses |  | $ | 2,425,970 |  |  | $ | 4,369,257 |  |  | $ | 1,483,889 |  |  | $ | 2,189,626 |

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- Definition The entire disclosure for income taxes. Disclosures may include 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, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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