INCOME TAX | 12 Months Ended |
Dec. 31, 2013 |
Income Tax Disclosure [Abstract] | ' |
INCOME TAX | ' |
NOTE 13 – INCOME TAX |
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The Company and each of its subsidiaries file separate income tax returns. |
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The United States of America |
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The Company is incorporated in the State of Delaware in the U.S., and is subject to U.S. federal corporate income tax at gradual rates of up to 35%. |
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British Virgin Islands |
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Taibang Biological is incorporated in the British Virgin Islands. Under the current laws of the British Virgin Islands (BVI), Taibang Biological is not subject to tax on income or capital gains. In addition, upon payments of dividends by Taibang Biological, no British Virgin Islands withholding tax is imposed. |
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Hong Kong |
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Taibang Holdings (Hong Kong) Limited (“Taibang Holdings”, formerly known as “Logic Holdings (Hong Kong) Limited”) is incorporated in Hong Kong and is subject to Hong Kong’s profits tax rate of 16.5% for the years ended December 31, 2013, 2012 and 2011. Taibang Holdings did not earn any income that was derived in Hong Kong for the years ended December 31, 2013, 2012 and 2011. The payments of dividends by Hong Kong companies are not subject to any Hong Kong withholding tax. |
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PRC |
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The PRC’s statutory income tax rate is 25%. The Company’s PRC subsidiaries are subject to income tax at 25% unless otherwise specified. |
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On February 12, 2009, Shandong Taibang received the High and New Technology Enterprise certificate from the Shandong provincial government. This certificate entitled Shandong Taibang to pay income taxes at a 15% preferential income tax rate for a period of three years from 2008 to 2010. On October 31, 2011, Shandong Taibang obtained a notice from the Shandong provincial government that the High and New Technology Enterprise qualification has been renewed for an additional three years from 2011 to 2013. Subject to reapplication Shangdong Taibang’s High-Tech Enterprise status will enable it to continue to enjoy the preferential income tax rate. Management believes that Shandong Taibang meets all the criteria for the reapplication of High-Tech Enterprise status. |
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Guizhou Taibang was entitled to the preferential income tax rate of 15% under the 10-year Western Development Tax Concession, which ended in 2010. According to CaiShui [2011] No. 58 dated July 27, 2011, Guizhou Taibang, being a qualified enterprise located in the western region of the PRC, enjoys a preferential income tax rate of 15% effective retroactively from January 1, 2011 to December 31, 2020. |
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The components of earnings (losses) before income taxes by jurisdictions are as follows: |
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| | For the Years Ended | | | |
| | December 31, | | December 31, | | December 31, | | | |
| | 2013 | | 2012 | | 2011 | | | |
| | USD | | USD | | USD | | | |
PRC, excluding Hong Kong | | 98,401,673 | | 84,980,477 | | 42,616,865 | | | |
U.S. | | -7,855,555 | | -6,314,398 | | -1,403,437 | | | |
BVI | | 2,116,243 | | 2,538,030 | | 1,645,364 | | | |
Hong Kong | | -260,996 | | -68,970 | | -575,924 | | | |
Total | | 92,401,365 | | 81,135,139 | | 42,282,868 | | | |
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Income tax expense for the years ended December 31, 2013, 2012 and 2011 represents current income tax expense and deferred tax expense (benefit): |
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| | For the Years Ended | | | |
| | December 31, | | December 31, | | December 31, | | | |
| | 2013 | | 2012 | | 2011 | | | |
| | USD | | USD | | USD | | | |
Current income tax expense | | 15,427,669 | | 14,035,714 | | 13,494,616 | | | |
Deferred tax expense (benefit) | | 112,632 | | 1,127,433 | | -2,595,103 | | | |
| | 15,540,301 | | 15,163,147 | | 10,899,513 | | | |
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The effective income tax rate based on income tax expense and earnings before income taxes reported in the consolidated statements of comprehensive income differs from the PRC statutory income tax rate of 25% due to the following: |
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| | For the Years Ended | |
| | December 31, | | | December 31, | | | December 31, | |
| | 2013 | | | 2012 | | | 2011 | |
| | (in percentage to earnings before income tax expense) | |
PRC statutory income tax rate | | 25 | % | | 25 | % | | 25 | % |
Non-taxable income | | - | | | -0.7 | % | | -2.3 | % |
Non-deductible expenses: | | | | | | | | | |
Share-based compensation | | 0.9 | % | | 1.9 | % | | 3.9 | % |
Impairment loss on goodwill | | - | | | - | | | 10.7 | % |
Loss on write-off of long-lived assets | | - | | | - | | | 0.8 | % |
Others | | 0.7 | % | | 0.4 | % | | 0.7 | % |
Tax rate differential | | -1 | % | | -1.2 | % | | 1.6 | % |
Effect of change in tax rate on deferred tax | | - | | | - | | | -1.8 | % |
Effect of PRC preferential tax rate | | -12.7 | % | | -11 | % | | -18.2 | % |
Bonus deduction on research and development | | -1.4 | % | | -1.3 | % | | -1.2 | % |
expenses |
Change in valuation allowance | | 1.7 | % | | 0.7 | % | | 2 | % |
PRC dividend withholding tax | | 2.8 | % | | 4 | % | | 3.1 | % |
Tax effect of equity method investment | | 0.8 | % | | 0.9 | % | | 1.5 | % |
Effective income tax rate | | 16.8 | % | | 18.7 | % | | 25.8 | % |
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The PRC tax rate has been used because the majority of the Company’s consolidated pre-tax earnings arise in the PRC. |
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As of December 31, 2013 and 2012, significant temporary differences between the tax basis and financial statement basis of assets and liabilities that gave rise to deferred taxes were principally related to the following: |
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| | December 31, 2013 | | December 31, 2012 | | | | | |
| | USD | | USD | | | | | |
Deferred tax assets arising from: | | | | | | | | | |
-Accrued expenses | | 2,065,310 | | 1,841,210 | | | | | |
-Tax loss carryforwards | | 8,950,323 | | 7,078,822 | | | | | |
Gross deferred tax assets | | 11,015,633 | | 8,920,032 | | | | | |
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Less: valuation allowance | | -7,558,590 | | -5,887,981 | | | | | |
Net deferred tax assets | | 3,457,043 | | 3,032,051 | | | | | |
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Deferred tax liabilities arising from: | | | | | | | | | |
- Intangible assets | | -548,651 | | -498,987 | | | | | |
- Property, plant and equipment | | - | | -198,443 | | | | | |
- Equity method investment | | -1,391,733 | | -1,190,841 | | | | | |
- Dividend withholding tax | | -2,467,760 | | -1,955,186 | | | | | |
Deferred tax liabilities | | -4,408,144 | | -3,843,457 | | | | | |
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Classification on consolidated balance sheets: | | | | | | | | | |
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Deferred tax assets – current, net (included in prepayments and other current assets) | | 2,065,310 | | 1,841,210 | | | | | |
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Deferred tax liabilities - non-current, net (included in other liabilities) | | -3,016,411 | | -2,652,616 | | | | | |
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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 temporary differences become deductible and tax loss carryforwards are utilized. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryforwards periods), projected future taxable income, and tax planning strategies in making this assessment. |
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The deferred tax assets of $8,950,323 for tax loss carry forwards as of December 31, 2013, of which $4,730,841 and $4,219,482 relate to tax loss carryforwards of certain PRC subsidiaries and CBP, respectively. For PRC income tax purposes, certain of the Company's PRC subsidiaries had tax loss carryforwards of $18,923,363, of which $1,153,544, $5,220,932, $7,180,046 and $5,368,841 would expire by 2015, 2016, 2017 and 2018, respectively, if unused. For United States federal income tax purposes, CBP had tax loss carryforwards of approximately $12,410,240, of which $1,268,307, $614,982, $1,113,597, $1,405,718, $2,350,326, $3,382,154, $978,837 and $1,296,319 would expire by 2026, 2027, 2028, 2029, 2030, 2031, 2032 and 2033, respectively, if unused. In view of their cumulative losses positions, management determined it is more likely than not that deferred tax assets of these PRC subsidiaries will not be realized, and therefore full valuation allowances of $4,730,841 and $3,300,089 were provided as of December 31, 2013 and 2012, respectively. For deferred tax assets of CBP, management determined it is more likely than not that some portion of the deferred tax assets of CBP will not be realized, and therefore valuation allowances of $2,827,749 and $2,587,892 were provided as of December 31, 2013 and 2012, respectively. The change in valuation allowance for the years ended December 31, 2013, 2012 and 2011 was an increase of $1,588,875, a decrease of $1,280,005 and an increase of $830,497, respectively. Management believes it is more likely than not that the Company will realize the benefits of the deferred tax assets, net of the valuation allowances, as of December 31, 2013 and December 31, 2012. |
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According to the prevailing PRC income tax law and relevant regulations, dividends relating to earnings accumulated beginning on January 1, 2008 that are received by non-PRC-resident enterprises from PRC-resident enterprises are subject to withholding tax at 10%, unless reduced by tax treaties or similar arrangement. Dividends relating to undistributed earnings generated prior to January 1, 2008 are exempt from such withholding tax. Further, dividends received by the Company from its overseas subsidiaries are subject to the U.S. federal income tax at 34%, less any qualified foreign tax credits. Based on the dividend policy the Company has provided the deferred tax liabilities of $2,467,760 on undistributed earnings of $25 million, approximately 20% of Shandong Taibang’s total undistributed earnings at December 31, 2013. Due to the Company’s plan and intention of reinvesting its earnings in its PRC business, the Company has not provided for the related deferred tax liabilities on the remaining undistributed earnings of the PRC subsidiaries totaling $162 million as of December 31, 2013. |
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As of January 1, 2011 and for each of the years ended December 31, 2011, 2012 and 2013, the Company and its subsidiaries did not have any unrecognized tax benefits, and therefore no interest or penalties related to unrecognized tax benefits were accrued. The Company does not expect that the amount of unrecognized tax benefits will change significantly within the next 12 months. |
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The Company and each of its PRC subsidiaries file income tax returns in the United States and the PRC, respectively. The Company is subject to U.S. federal income tax examination by tax authorities for tax years beginning in 2007. According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances where the underpayment of taxes is more than RMB100,000 (approximately $15,000). In the case of transfer pricing issues, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion. The PRC tax returns for the Company’s PRC subsidiaries are open to examination by the PRC tax authorities for the tax years beginning in 2008. |
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