XML 101 R21.htm IDEA: XBRL DOCUMENT v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Taxes [Abstract]  
Income Taxes
(15) Income Taxes
 
United States
 
Orient Paper and Shengde Holdings are incorporated in the State of Nevada and are subject to the U.S. federal tax and state statutory tax rates up to 34% and 0%, respectively.
 
PRC
 
Orient Paper HB and Orient Paper Shengde are PRC operating companies and are subject to PRC Enterprise Income Tax. Pursuant to the PRC New Enterprise Income Tax Law, Enterprise Income Tax is generally imposed at a statutory rate of 25%.
 
The provisions for income taxes for the years ended December 31, 2012, 2011 and 2010 were as follows:
 
   
Year Ended
  
   
December 31,
  
   
2012
    
2011
    
2010
  
Provision for Income Taxes
                        
Current Tax Provision - PRC
  
$
6,406,050
    
$
7,799,226
    
$
5,964,621
  
Deferred Tax Provision - PRC
    
(941,207
)
    
-
      
-
  
Total Provision for Income Taxes
  
$
5,464,843
    
$
7,799,226
    
$
5,964,621
  
 
In addition to the reversible future PRC income tax benefits stemming from the timing differences of items such as recognition of asset disposal gain or loss and asset depreciation, Orient Paper, Inc. was incorporated in the United States and has incurred aggregate net operating losses of approximately $3,148,622, $2,230,753 and $3,533,052 for U.S. income tax purposes for the years ended December 31, 2012, 2011 and 2010, respectively. The net operating loss carried forward may be available to reduce future years’ taxable income. These carry forwards will expire, if not utilized, during the period of 2028 through 2032. Management believes that the realization of all the U.S. income tax benefits from these losses, which generally would generate a deferred tax asset if it can be expected to be utilized in the future, appears not more than likely due to the Company’s limited operating history and continuing losses for United States income tax purposes. Accordingly, the Company has provided a 100% valuation allowance on the U.S. deferred tax asset benefit to reduce the total deferred tax asset to the amount realizable for the PRC income tax purposes. Management will review this valuation allowance periodically and make adjustments as warranted. A summary of the otherwise deductible (or taxable) deferred tax items is as follows:
 
   
December 31,
  
   
2012
    
2011
  
Deferred tax assets (liabilities)
                
Depreciation and amortization
    
401,482
      
-
  
Impairment of property, plant and equipment
    
690,916
      
-
  
Miscellaneous
  
$
(150,742
)
    
346
  
Net Operating Loss Carryover for U.S. income tax purposes
    
2,303,851
      
1,827,128
  
Total deferred tax assets
    
3,245,507
      
1,827,474
  
Less: Valuation allowance
    
(2,303,851
)
    
(1,827,474
)
Total deferred tax assets, net
  
$
941,656
    
$
-
  
 
The following table reconciles the statutory rates to the Company's effective tax rate as of
 
   
Year ended
  
   
December 31,
  
   
2012
    
2011
    
2010
  
PRC Statutory rate
    
25.0
%
    
25.0
%
    
25.0
%
Effect of different tax jurisdiction
    
(0.6
)
    
(0.6
)
    
(1.0
)
Effect of expenses not deductible for PRC tax purposes
    
-
      
0.1
      
0.1
  
Effect of income not taxable for PRC tax purposes
    
0.3
      
(0.3
)
    
-
  
Under provision in previous year
    
-
      
0.1
      
0.1
  
Change in valuation allowance
    
2.4
      
2.2
      
3.5
  
Effective income tax rate
    
27.1
%
    
26.5
%
    
27.7
%
 
For U.S. tax purposes, the Company has cumulative undistributed earnings of foreign subsidiaries of approximately $86,287,945 and $69,816,970 as of December 31, 2012 and 2011, respectively, which are included in consolidated retained earnings and will continue to be indefinitely reinvested in international operations. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings, nor is it practicable to estimate the amount of income taxes that would have to be provided if we concluded that such earnings will be remitted to the U.S. in the future.

On June 1, 2012, the Company’s Board of Directors approved a quarterly cash dividend of $0.0125/share for four quarters starting the first record date of June 15, 2012. Total cash dividends for the four quarters are expected to be approximately $922,989 based on the total shares issued and outstanding as of December 31, 2012. The source of fund for the first three cash dividend paid by the Company as of December 31, 2012 was provided by Orient Paper HB, the Company’s VIE. For purposes of the consolidated financial statements, the dividend paid has been recorded as a distribution from the Company’s retained earnings. For U.S federal income tax purposes, the Company made the assumption that, despite the repatriation of fund was made by a variable interest entity and not the Company’s wholly-owned subsidiary, the receipt of a profit distribution from its Chinese VIE constitute a tax item of income that will be fully offset by the Company’s current year ordinary tax deductions and accumulated Net Operating Losses (NOLs), which amounted to approximately $4,526,391 before any utilization of such NOLs to absorb taxable income derived from the dividend distribution as of December 31, 2012. The Company does not believe that its current and future dividend policy and the available U.S. tax deductions and NOLs will cause the Company to recognize any substantial current U.S. federal or state corporate income tax liability in the near future. Nor does it believes that the amount of the repatriation of the VIE’s earnings and profits for purposes of paying dividends will change the Company’s position that its PRC subsidiary Orient Paper Shengde and the VIE, Orient Paper HB are considered or are expected to be indefinitely reinvested offshore to support our future capacity expansion. If these earnings are repatriated to the U.S. resulting in U.S. taxable income in the future, or if it is determined that such earnings are to be remitted in the foreseeable future, additional tax provisions would be required.
  
The Company has adopted ASC Topic 740-10-05, Income Taxes. To date, the adoption of this interpretation has not impacted the Company’s financial position, results of operations, or cash flows. The Company performed self-assessment and the Company’s liability for income taxes includes the liability for unrecognized tax benefits, interest and penalties which relate to tax years still subject to review by taxing authorities. Audit periods remain open for review until the statute of limitations has passed, which in the PRC is usually 5 years. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of December 31, 2012 and 2011, management considered that the Company had no uncertain tax positions affecting its consolidated financial position and results of operations or cash flows, and will continue to evaluate for any uncertain position in future. There are no estimated interest costs and penalties provided in the Company’s consolidated financial statements for the years ended December 31, 2012, 2011 and 2010, respectively. The Company’s tax positions related to open tax years are subject to examination by the relevant tax authorities and the major one is the China Tax Authority.