16. Income Taxes

The Company files a U.S. federal income tax return and also is subject to income tax in those foreign jurisdictions in which the subsidiaries and operate with the exception of China Broadband, Ltd., it British Virgin Islands subsidiary, which is not subject to income tax. Amounts provided for income taxes are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable. Deferred taxes are recognized for the future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and income tax purposes using enacted rates expected to be in effect when such amounts are realized or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The realization of deferred tax assets is assessed and a valuation allowance is recorded to the extent that it is more likely than not that any portion of the deferred tax asset will not be realized. The income tax benefit for the three month periods ended March 31, 2012 and 2011 results primarily from changes in calculated deferred taxes, particularly liabilities associated with intangible assets. Deferred tax assets associated with net operating losses have a full valuation allowance recorded against them except in those instances in which they can offset deferred tax liabilities. The income tax benefit for the three months ended March 31, 2012 and 2011 is net of a $438 and $456 expense for estimated penalties and interest that would be due on unrecognized tax positions.

As of March 31, 2012, the Company's Chinese and Hong Kong subsidiaries have not had any net earnings and consequently the Company does not have any undistributed earnings from those subsidiaries. Under existing laws, such earnings will not be subject to U.S. tax until distributed as dividends. Once the Company's subsidiaries have earnings, any such earnings that are distributed to the Company will be subject to a withholding tax at a rate of 5% in accordance with the PRC and Hong Kong Taxation Arrangement. Such distributions will also be taxable in the United States but such U.S. taxation will likely be partially offset by credits for the PRC and Hong Kong taxes paid on the income. For any earnings of the Chinese and Hong Kong subsidiaries that are not distributed, deferred tax liabilities for the 5% withholding tax and U.S. taxes in excess of the foreign tax credit will be recognized to the extent that such undistributed earnings are expected to be distributed. No deferred income tax liability will be recognized on undistributed earnings of the Chinese and Hong Kong subsidiaries if they are deemed to have been permanently invested outside the U.S., and it is not practicable to estimate the deferred tax liability related to such undistributed earnings.

China passed an Enterprise Income Tax Law ("EIT Law") and implementing rules, both of which became effective January 1, 2008. Under the EIT Law, an enterprise established outside of China with "de facto management bodies" within China is considered a "resident enterprise," meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes.

If the EIT Law were to be applied to YOU On Demand Holdings, Inc., (the Nevada Corporation itself) and/or to China Broadband, Ltd., those entities would be subject to Chinese corporate income tax, currently at a rate of 25%. It would also be possible that the Company would not be able to claim a credit against is U.S. income taxes for those Chinese corporate income taxes. To date, these two entities have generated no net income so there would be no Chinese tax liability even if the EIT Law were to apply to them.

The Company's United States income tax returns are subject to examination by the Internal Revenue Service ("IRS") for at least 2007 and later years. Because of the uncertainty regarding the filing of tax returns for earlier years it is possible that the Company is subject to examination by the IRS for earlier years. All of the Chinese tax returns for the Chinese operating companies are subject to examination by the Chinese tax authorities for all periods from the companies' inceptions in years from 2007 to 2011 as applicable. The Company is not aware of any income tax audits in any of the jurisdictions to which it is subject.

The Company's current management does not believe that the Company has filed United States corporate income tax returns for several years prior to the January 23, 2007 merger transaction and accompanying change in management under which the Company in its current form was created. Management believes that because of the lack of taxable income there will be no material penalties resulting from any previous non-compliance.

Management believes that it has $6,706,453 of net operating loss carryovers from prior to 2006. These carryovers expire in various years through 2025. Since Management has not been able to determine whether income tax returns were filed for this period and may not be able to recreate the records to file them if they have not they may be unable to claim the pre-exchange transaction net operating loss carryovers. In addition, even if the net operating loss carryovers were to be properly established, the future use of any pre-exchange transaction net operating loss carryovers will be significantly limited under section 382 of the internal revenue code because of the change of control in January 2007 as well as by previous changes in the control of the Corporate entity. The extent of these limitations has not yet been determined.

As of March 31, 2012, the Company has available additional U.S. net operating loss carryovers of $11,170,451, and will expire in the years 2027 through 2032. The non-recognition of the tax benefits, while reducing the net operating loss carryovers, gives rise to a capital loss carryover of $1,420,289 and an AMT credit of $17,952. The Company also has a charitable contributions carryover of $2,000 at March 31, 2012.

In addition to the U.S. net operating losses, Jinan Broadband, Shandong Media, Sinotop Hong Kong, Zhong Hai Video and the YOD WFOE have the following estimated Chinese (Hong Kong in the case of Sinotop) net operating loss carryovers at March 31, 2012 with the expiration dates as shown:

	Jinan		Shandong		Sinotop		Zhong Hai		YOD				Total
Expiring	Broadband		Media		Hong Kong		Video		WFOE		Other		Foreign
2012	$	-	$	-	$	-	$	-	$	55,726	$	-	$	55,726
2013		-		14,659		-		-		41,560		-		56,219
2014		-		92,581		-		-		35,013		-		127,594
2015		-		465,215		322,921		385,417		18,460		-		1,192,013
2016		76,654		339,218		417,358		1,799,062		994		395,314		3,028,600
2017		78,312		226,191		85,048		185,025		965		711,739		1,287,280
Total	$	154,966	$	1,137,864	$	825,327	$	2,369,504	$	152,718	$	1,107,053	$	5,747,432

The Company has established a valuation allowance against its net deferred tax assets in the amount of $10,058,886 and $9,057,657 as of March 31, 2012 and December 31, 2011, respectively, due to the Company's history of pre-tax losses and the resulting likelihood that deferred tax assets are not realizable.