| INCOME TAXES | NOTE 9 - INCOME TAXES Deferred income tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered
or settled. The effect of a change in tax laws or rates on deferred tax assets and liabilities is recognized in income in the period
that includes the enactment date. Liabilities are established for uncertain tax positions expected
to be taken in income tax returns when such positions are judged to meet the “more-likely-than-not” threshold based
on the technical merits of the positions. Estimated interest and penalties related to uncertain tax positions are included as a
component of other expenses. Through December 31, 2017, the Company has not identified any uncertain tax positions that it has
taken. U.S. income tax returns for the years ended December 31, 2014 through December 31, 2017 and the Chinese income tax return
for the year ended December 31, 2017 are open for possible examination. On March 16, 2007, the National People’s
Congress of China passed the Enterprise Income Tax Law (EIT Law) and on December 6, 2007, the State Council of China issued the
Implementation Regulations for the EIT Law which took effect on January 1, 2008. The EIT Law and Implementation Regulations
Rules impose a unified EIT of 25% on all domestic-invested enterprises and Foreign Invested Entities, or FIEs, unless they qualify
under certain limited exceptions. The Company is located in a special region,
which had a 15% corporate income tax rate before the new EIT Law. The new EIT Law abolished the preferential corporate income tax
rate in the special region. The Company transitioned to the new 25% tax rate over a five year period which began on January 1,
2008. During 2010, the Company applied for and received a favorable tax rate of 15% for fiscal 2011 through 2013 due to its status
in the PRC as a high technology enterprise. In 2013, the Company again applied for and received the same favorable tax rate for
2014 to 2016. The recent net losses have put the Company in an unfavorable position for the potential renewal of “National
High-Tech Enterprise” status in 2017. After evaluating the feasibility of the renewal, the Company has decided not to renew
this status. Under the current tax law in the PRC, the Company is and will be subject to the enterprise income tax rate of
25%. The provision for income taxes consisted
of the following:
Three Months Ended Nine Months Ended
2018 2017 2018 2017
Current $ (181,524 ) $ - $ (181,524 ) $ -
Deferred 21,039 31,198 69,614 92,106
Total income tax expense $ (160,485 ) $ 31,198 $ (111,910 ) $ 92,106 As of September 30, 2018, the Company had
net operating loss carryforwards for PRC tax purposes of approximately $57.8 million which are available to offset any future taxable
income through 2022. Approximately $6.1 million of these carryforwards will expire in 2018. The Company also has net operating
losses for United States federal income tax purposes of approximately $5.3 million which are available to offset future taxable
income, if any, through 2038. During quarter ending September 30, 2018, the Company received a refund related to its 2013 PRC tax
return in the amount of $181,524. Recent U.S. federal tax legislation, commonly
referred to as the Tax Cuts and Jobs Act (the “U.S. Tax Reform”), was signed into law on December 22, 2017. The
U.S. Tax Reform significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal
corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating
many business deductions; migrating the U.S. to a territorial tax system with a one-time transition tax on a mandatory
deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally
eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. In assessing the realizability of deferred
tax assets, Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those differences become deductible or tax loss carry forwards are utilized. Management
considers projected future taxable income and tax planning strategies in making this assessment. Based upon an assessment
of the level of historical taxable income and projections for future taxable income over the periods on which the deferred tax
assets are deductible or can be utilized, Management believes it is not likely for the Company to realize all benefits of the deferred
tax assets as of September 30, 2018 and December 31, 2017. Therefore, the Company provided for a valuation allowance
against its deferred tax assets of $26,726,483 and $27,270,737 as of September 30, 2018 and December 31, 2017, respectively. The Company also incurred various other
taxes, comprised primarily of business taxes, value-added taxes, urban construction taxes, education surcharges and others. Any
unpaid amounts are reflected on the balance sheets as accrued taxes payable. |
