Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities

6 Months Ended

Mar. 31, 2013

Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities [Text Block]

12. Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities

(a) Income taxes in the consolidated statements of comprehensive loss

The Company’s provision for income taxes consisted of:

		For the Three Months				For the Six Months
		ended March 31,				ended March 31,
		2012		2013		2012		2013
PRC income tax:
Current	$	-	$	213,424	$	-	$	244,822
Deferred		7,846		5,780,842		2,121,856		5,781,450
	$	7,846	$	5,994,266	$	2,121,856	$	6,026,272

United States Tax

China BAK is subject to statutory tax rate of 35% under United States of America tax law. No provision for income taxes in the United States or elsewhere has been made as China BAK had no taxable income for the three months and six months ended March 31, 2012 and 2013.

Canada States Tax

BAK Canada is subject to statutory tax rate of 38% under Canada tax law. No provision for income taxes in Canada has been made as BAK Canada had no taxable income for the three months and six months ended March 31, 2012 and 2013.

German States Tax

BAK Europe is subject to 25% statutory tax rate under Germany tax law.

India Tax

BAK India is subject to 30% statutory tax rate under India tax law. No provision for income taxes in India has been made as BAK India had no taxable income for the three months and six months ended March 31, 2012 and 2013.

Hong Kong Tax

BAK International is subject to Hong Kong profits tax rate of 16.5% . Management of BAK International has determined that all income and expenses are offshore and not subject to Hong Kong profits tax. As a result, BAK International did not incur any Hong Kong profits tax during the periods presented.

PRC Tax

Shenzhen BAK is entitled to a preferential enterprise income tax rate of 15% for the three months and six months ended March 31, 2012 and 2013.

BAK Electronics and BAK Tianjin are subject to an income tax rate of 25%. BAK Electronics and BAK Tianjin did not incur any enterprise income tax for the current year due to cumulative tax losses.

A reconciliation of the provision for income taxes determined at the statutory income tax to the Company's income tax expenses as follows:

		For the Three Months						For the Six Months
		ended March 31,						ended March 31,
		2012			2013			2012			2013
					(As restated)
Loss before income taxes	$	(15,620,202	)	$	(13,694,111	)	$	(15,325,946	)	$	(41,827,854	)
United States federal corporate income tax rate		35%			35%			35%			35%
Income tax computed at United States statutory corporate		5,467,071			4,792,939			5,364,081			14,639,749
income tax rate
Reconciling items:
Rate differential for PRC earnings		(2,542,096	)		(2,726,524	)		(1,624,531	)		(8,061,891	)
Loss not recognized as deferred tax assets		(2,912,297	)		(2,245,771	)		(3,385,665	)		(6,533,102	)
Valuation allowance on deferred tax assets		(7,846	)		(5,780,842	)		(2,121,866	)		(5,781,450	)
Share based payment		(12,678	)		(34,068	)		(76,739	)		(76,434	)
Under-provision in prior year		-			-			(277,136	)		(213,144	)
Income tax expenses	$	(7,846	)	$	( 5,994,266	)	$	(2,121,856	)	$	(6,026,272	)

As of September 30, 2012 and March 31, 2013, the Company’s U.S. entity, had net operating loss carry forwards of $2,206,951 and $2,690,063, respectively, available to reduce future taxable income which will expire in various years through 2030 and the Company’s PRC subsidiaries had net operating loss carry forwards of $56,467,856 and $104,764,412 which will expires in various years through 2018. Management believes it is more likely than not that the Company will not realize these potential tax benefits as the Company’s U.S. operations will not generate any operating profits in the foreseeable future. As a result, the full amount of the valuation allowance was provided against the potential tax benefits.

(b) Deferred tax assets and deferred tax liabilities

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of September 30, 2012 and March 31, 2013 are presented below:

		Sep 30, 2012			Mar 31, 2013
Deferred tax assets
Short-term
Trade accounts receivable	$	8,651,151		$	12,447,987
Inventories		3,104,830			5,291,639
Accrued expenses and other payables		597,130			713,875
Valuation allowance		(8,353,068	)		(18,453,501	)
Short-term deferred tax assets		4,000,043			-
Long-term
Property, plant and equipment		4,877,766			6,580,441
Net operating loss carried forward		12,271,943			19,924,429
Valuation allowance		(15,412,728	)		(26,504,870	)
Long-term deferred tax assets		1,736,981			-
Total net deferred tax assets	$	5,737,024		$	-
Deferred tax liabilities:
Long-term
Property, plant and equipment	$	(759,394	)	$	(768,948	)
Net deferred tax assets	$	(759,394	)	$	(768,948	)