INCOME TAX

9 Months Ended

Mar. 31, 2018

Notes to Financial Statements

INCOME TAX

The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining the provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws. The statute of limitations, in general, is open for years 2014 to 2017 for tax authorities in those jurisdictions to audit or examine income tax returns. The Company is under annual review by the tax authorities of the respective jurisdiction to which the subsidiaries belong.

The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017, and reduced the U.S. federal corporate tax rate from 35% to 21%, eliminated corporate Alternative Minimum Tax, modified rules for expensing capital investment, and limits the deduction of interest expense for certain companies. The Tax Act is a fundamental change to the taxation of multinational companies, including a shift from a system of worldwide taxation with some deferral elements to a territorial system, current taxation of certain foreign income, a minimum tax on low tax foreign earnings, and new measures to curtail base erosion and promote U.S. production.

As the Company has a June 30 fiscal year end, the lower corporate income tax rate will be phased in, resulting in a lower US statutory federal rate. Accounting Standard Codification (“ASC”) 740 requires filers to record the effect of tax law changes in the period enacted. The Company recognized income tax expenses of $900 related to the one-time deemed repatriation. No expenses have been recognized related to the deferred tax re-measurement and minimum tax on low tax foreign earnings.

Discussion of the certain material provisions affecting the Company is provided below.

One-Time Mandatory Repatriation

One of the effects of the Tax Act is to transition from world wide to territorial tax system, The Tax Act requires a mandatory one-time repatriation of certain post-1986 earnings and profits that were deferred from US taxation by Company’s foreign subsidiaries. The Company recognized an income tax expense and payable of $900 for the three and nine months ended March 31, 2018. The basis of the tax is on cash held and specified assets which are taxed at 15.5% and 8.0%, respectively. The Company may elect to pay the repatriation tax over an 8-year period.

The computation of the post-1986 earning and profits used estimates and are preliminary amounts which will be finalized during the measurement period.

Minimum Tax on Low Tax Foreign Earnings

The Tax Act implemented the inclusion in gross income for the “global intangible low-tax income” for any taxable year beginning on or after January 1, 2018. This provision significantly expands current taxation of foreign subsidiary corporate earnings. The Company must generally include in current income all earnings of the foreign subsidiaries in excess of the assumed deemed return on tangible assets of the foreign subsidiaries. The Company has not computed the impact of the provisions to determine whether to elect to either provide for the minimum tax as future income tax expense as a period expense or as a deferred tax on the related investment in foreign subsidiaries.

Deferred Tax Re-Measurement

The re-measurement is based on the expected reversals of the deferred taxes at the estimated US federal tax rates of 28% for current fiscal year and 21% for future fiscal years. As the Company established a full valuation allowance on the US deferred tax assets, the Company has not recognized any income tax effects for the deferred tax re-measurement under the Tax Act.

Effective Tax Rate Effects

	Three Months Ended						Nine Months Ended
	Mar. 31,			Mar. 31,			Mar. 31,			Mar. 31,
	2018			2017			2018			2017
	Unaudited			Unaudited			Unaudited			Unaudited
Income before Income Taxes	$	281		$	487		$	1,616		$	1,349
Income Taxes Expenses	$	980		$	106		$	1,035		$	256
Effective tax rate		348.75	%		21.77	%		64	%		18.98	%

The Act impacted the Company’s effective tax rate which recorded at 348.75% for fiscal 2018 compared to 21.77% for fiscal 2017. This tax effects were primarily due to estimated charge of $900 recorded as a component of provision for income taxes from continuing operations.

The Company had an income tax expense of $980 and $1,035 for the three and nine months ended March 31, 2018, respectively, as compared to income tax expense of $106 and $256, respectively, for the same periods in the last fiscal year. The increase in income tax expenses was mainly due to higher incomes generated by the subsidiaries which has carry forward tax losses which was partially offset by increase in deferred tax for timing differences recorded by Singapore and Malaysia operation. The income tax expenses included withholding tax held by related companies that were not recoverable from the Inland Revenue Board in Singapore.

The Company accrues penalties and interest related to unrecognized tax benefits when necessary as a component of penalties and interest expenses, respectively. The Company had not accrued any penalties or interest expenses relating to unrecognized benefits at March 31, 2018 and June 30, 2017.

As per the Staff Accounting Bulletin No. 118 (“SAB 118”) issued by SEC “no related provisional amount would be included in an entity’s financial statements for those specific income tax effects for which a reasonable estimate cannot be determined”. Based on the SAB 118 guidance, the company did not provide for tax payable in Q2 of the financial year 2018 as it was unable to determine a reasonable estimate to be included as provisional amounts.