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Income Taxes | 6 Months Ended
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Jun. 30, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | 11. INCOME TAXES Pre-tax income (loss) from continuing operations for the six months ended June 30, 2018 and 2017 were taxable in the following jurisdictions:
|  | Six Months |  |  | Six Months |
|  | Ended |  |  | Ended |
|  | June 30,2018 |  |  | June 30,2017 |
|  | (Unaudited) |  |  | (Unaudited) |
PRC |  | $ | 1,739,641 |  |  | $ | (600,524 | )
Others |  |  | (853,113 | ) |  |  | (430,543 | )
Total income (loss) before income taxes |  | $ | 886,528 |  |  | $ | (1,031,067 | )
United States Because of the domestication transaction in 2012 by which TAOP became the parent of our group, under Section 7874 of the Internal Revenue Code of 1986, as amended, the Company is treated for U.S. federal tax purposes as a U.S. corporation and, among other consequences, is subject to U.S. federal income tax on its worldwide income. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”). The Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a tax on Global Intangible Low-Taxed Income (“GILTI”) which is a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (6) creating the base erosion anti-abuse tax (“BEAT”), a new minimum tax; (7) creating a new limitation on deductible interest expense; and (8) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. The SEC staff issued Staff Accounting Bulletin 118, which provides guidance on accounting for the tax effects of the Act for which the accounting under ASC 740, Income Taxes (“ASC 740”) is incomplete. To the extent that a company’s accounting for certain income tax effects of the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before enactment of the Act. As of June 30, 2018, the Company has not completed its accounting for the tax effects of the enactment of the Act. Final accounting for these effects is expected in the fourth quarter of 2018 subsequent to the Company’s completion of the 2017 tax return. The Company operates primarily in PRC. To complete the accounting associated with the Act, the Company will continue to review the technical tax interpretations associated with the underlying law, monitor state legislative changes, and review U.S. federal and state guidance as it is issued. Further the Company will continue to accumulate and refine the relevant data and computational elements needed to finalize its accounting within the measurement period. BVI Under the current laws of the BVI, dividends and capital gains arising from the Company’s investments in the BVI and ordinary income, if any, are not subject to income taxes. Hong Kong Under the current laws of Hong Kong, ISSI, IST HK and HPC are subject to a profit tax rate of 16.5% . PRC Income tax (benefit) expense from continuing operations consists of the following:
|  | Six Months |  |  | Six Months |
|  | Ended |  |  | Ended |
|  | June 30,2018 |  |  | June 30,2017 |
|  | (Unaudited) |  |  | (Unaudited) |
Current taxes |  | $ | (1,286,388 | ) |  | $ | (1,045,500 | )
Income tax benefit |  | $ | (1,286,388 | ) |  | $ | (1,045,500 | )
Current income tax benefit was recorded in 2018 and 2017 and was related to differences between the book and corporate income tax returns.
|  | Six Months |  |  | Six Months |
|  | Ended |  |  | Ended |
|  | June 30,2018 |  |  | June 30,2017 |
|  | (Unaudited) |  |  | (Unaudited) |
PRC statutory tax rate |  |  | 25 | % |  |  | 25 | %
Computed expected income tax (benefit) expense |  | $ | 221,632 |  |  | $ | (257,767 | )
Tax rate differential benefit from tax holiday |  |  | (248,536 | ) |  |  | 26,817 |
Permanent differences |  |  | (1,447,813 | ) |  |  | (930,476 | )
Tax effect of deductible temporary differences not recognized |  |  | (24,949 | ) |  |  | (47,995 | )
Non-deductible tax loss |  |  | 213,278 |  |  |  | 163,921 |
Income tax (benefit) expense |  | $ | (1,286,388 | ) |  | $ | (1,045,500 | )
The significant components of deferred tax assets and deferred tax liabilities were as follows as of June 30, 2018 and December 31, 2017:
|  | June 30, 2018 |  |  | December 31, 2017 |
|  | (Unaudited) |  |  |  |
|  | Deferred |  |  | Deferred |  |  | Deferred |  |  | Deferred |
|  | Tax |  |  | Tax |  |  | Tax |  |  | Tax |
|  | Assets |  |  | Liabilities |  |  | Assets |  |  | Liabilities |
Allowance for doubtful accounts |  | $ | 1,142,987 |  |  | $ | - |  |  | $ | 1,188,831 |  |  | $ | - |
Loss carry-forwards |  |  | 1,483,777 |  |  |  | - |  |  |  | 1,314,061 |  |  |  | - |
Fixed assets |  |  | 3,084 |  |  |  | (243,913 | ) |  |  | 20,937 |  |  |  | (243,728 | )
Inventory valuation |  |  | 325,002 |  |  |  | - |  |  |  | 408,905 |  |  |  | - |
Salary payable |  |  | 8,839 |  |  |  | - |  |  |  | 12,113 |  |  |  | - |
Intangible assets |  |  | 226,057 |  |  |  | 132,517 |  |  |  | 212,283 |  |  |  | 134,801 |
Gross deferred tax assets and liabilities |  |  | 3,189,746 |  |  |  | (111,396 | ) |  |  | 3,157,130 |  |  |  | (108,927 | )
Valuation allowance |  |  | (3,078,350 | ) |  |  | - |  |  |  | (3,048,203 | ) |  |  | - |
Total deferred tax assets and liabilities |  | $ | 111,396 |  |  | $ | (111,396 | ) |  | $ | 108,927 |  |  | $ | (108,927 | )
The Company has net operating loss carry forwards totaling RMB 57.7 million ($9.1 million) as of June 30, 2018, substantially all of which were from PRC subsidiaries and will expire on various dates through December 31, 2022. Valuation allowance for deferred tax asset was fully provided. IST and Topcloud are all governed by the Income Tax Laws of the PRC. These companies are approved as being high-technology enterprises and subject to PRC enterprise income tax rate (“EIT”) at 15%, while Biznest is subject to a 12.5% of EIT. The Company recognizes that virtually all tax positions in the PRC are not free of some degree of uncertainty due to tax law and policy changes by the State. However, the Company cannot reasonably quantify political risk factors and thus must depend on guidance issued by current State officials. Based on all known facts, circumstances, and current tax law, the Company has recorded $-0- and $-0- of unrecognized tax benefits as of June 30, 2018 and December 31, 2017, respectively. The Company believes that there are no tax positions for which it is reasonably possible, based on current Chinese tax laws and policies, that the unrecognized tax benefits will significantly increase or decrease over the next 12 months, individually or in the aggregate, and have a material effect on the Company’s results of operations, financial condition or cash flows. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. Any accrued interest or penalties associated with any unrecognized tax benefits were not significant for the six months ended June 30, 2018 and 2017. Since the Company intends to reinvest its earnings to further expand its businesses in the PRC, the PRC subsidiaries do not intend to declare dividends to their parent companies in the foreseeable future. The Company’s foreign subsidiaries are in a cumulative deficit position. Accordingly, the Company has not recorded any deferred taxes on the cumulative amount of any undistributed deficit earnings. It is impractical to calculate the tax effect of the deficit at this time.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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