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Income Tax | 6 Months Ended
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Jun. 30, 2020
Income Tax Disclosure [Abstract] |
INCOME TAX | 14. INCOME TAX The Company’s Chinese subsidiaries are 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 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 income from their PRC operations. All of the Company’s Chinese subsidiaries’ effective income tax rate for 2019 and 2018 was 25%. Yinghua, Shanghai TCH, Xi’an TCH, Huahong, Zhonghong and Erdos TCH file separate income tax returns. There is no income tax for companies domiciled in the Cayman Islands. Accordingly, the Company’s CFS do not present any income tax provisions related to Cayman Islands tax jurisdiction, where Sifang Holding is domiciled. The US parent company, CREG is taxed in the US and, as of June 30, 2020, had net operating loss (“NOL”) carry forwards for income taxes of $1.74 million; for federal income tax purposes, the NOL arising in tax years beginning after 2017 may only reduce 80% of a taxpayer’s taxable income, and may be carried forward indefinitely. The management believes the realization of benefits from these losses may be uncertain due to the US parent company’s continuing operating losses. Accordingly, a 100% deferred tax asset valuation allowance was provided. The recently issued Coronavirus Aid, Relief and Economic Security Act (the CARES Act or the Act), provides four relief provisions for corporate taxpayers as follows:
1. | Five-year net operating loss (NOL) carryback provision: the Act allows for the carryback of losses arising in a taxable year beginning after December 31, 2017, and before January 1, 2021, to each of the five taxable years preceding the taxable year of the loss.
2. | Fiscal year NOL carryback fix from the Tax Cuts and Jobs Act (TCJA) of 2017: the Act corrects the language to provide fiscal year taxpayers who had NOLs arising in years that began prior to December 31, 2017 and ended after December 31, 2017 with the ability to carry back those NOLs.
3. | Deferral of 80% income limitation on post-2017 NOLs to 2021: the Act suspends this 80% limitation for taxable years beginning before January 1, 2021, and instead allows the full offset of taxable income. For tax years beginning after December 31, 2020, the Act reinstates the 80% limitation.
4. | Immediate Alternative Minimum Tax (“AMT”) tax credit refunds: the Act accelerates availability of AMT credits. The full remaining refundable AMT credit amount will be available for a corporation’s first taxable year beginning in 2019. Alternatively, a corporation may elect to use 100% of its AMT credits for its first taxable year beginning in 2018.
As of June 30, 2020, the Company’s PRC subsidiaries had $66 million NOL that can be carried forward to offset future taxable income for five years from the year the loss is incurred. The NOL was mostly from Erdos TCH and Zhonghong, Erdos TCH has not yet resumed operation and Zhonghong has not yet generated any sales; accordingly, the Company recorded a 100% deferred tax valuation allowance for PRC NOL. The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the six months ended June 30, 2020 and 2019, respectively:
|  | 2020 |  |  | 2019 |
U.S. statutory rates |  |  | 21.0 | % |  |  | (21.0 | )%
Tax rate difference – current provision |  |  | 10.1 | % |  |  | (3.6 | )%
Tax adjustment on PRC tax return |  |  | - | % |  |  | 5.3 | %
Reversal of temporary difference due to disposal of Shenqiu |  |  | - | % |  |  | (22.4 | )%
Permanent differences |  |  | 12.6 | % |  |  | 2.0 | %
Change in valuation allowance on PRC NOL |  |  | (62.8 | )% |  |  | 15.4 | %
Change in valuation allowance on US NOL |  |  | 19.1 | % |  |  | 0.2 | %
Tax (benefit) per financial statements |  |  | - | % |  |  | (24.1 | )%
The provision for income tax expense for the six months ended June 30, 2020 and 2019 consisted of the following:
|  | 2020 |  |  | 2019 |
Income tax expense – current |  | $ | - |  |  | $ | 78,044 |
Income tax benefit – deferred |  |  | - |  |  |  | (2,364,088 | )
Total income tax benefit |  | $ | - |  |  | $ | (2,286,044 | )
The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended June 30, 2020 and 2019, respectively:
|  | 2020 |  |  | 2019 |
U.S. statutory rates |  |  | 21.0 | % |  |  | (21.0 | )%
Tax rate difference – current provision |  |  | 5.4 | % |  |  | (3.8 | )%
Tax adjustment on PRC tax return |  |  | - | % |  |  | 9.8 | %
Reversal of temporary difference due to disposal of Shenqiu |  |  | - | % |  |  | 3.2 | %
Permanent differences |  |  | 2.6 | % |  |  | - | %
Other |  |  | - | % |  |  | 1.6 | %
Change in valuation allowance on PRC NOL |  |  | (33.8 | )% |  |  | 11.9 | %
Change in valuation allowance on US NOL |  |  | 4.8 | % |  |  | 0.3 | %
Tax expense per financial statements |  |  | - | % |  |  | 2.0 | %
The provision for income tax expense for the three months ended June 30, 2020 and 2019 consisted of the following:
|  | 2020 |  | 2019
Income tax benefit – current |  | $ | - |  |  | $ | (61,700) |
Income tax expense – deferred |  |  | - |  |  |  | 166,527 | )
Total income tax expense |  | $ | - |  |  | $ | 104,827 |

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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