INCOME TAX

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

Note 7. INCOME TAX

The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made, as the Company had no U.S. taxable income for the year ended December 31, 2012 and 2011. The applicable income tax rate for the Company for both of the years ended December 31, 2012 and 2011 was 26%. The amount of unrecognized deferred tax liabilities for temporary differences related to the dividend from foreign subsidiaries is not determined because such determination is not practical.

The Company has not provided deferred taxes on undistributed earnings attributable to its PRC subsidiaries as they are to be permanently reinvested. On February 22, 2008, MOF, and SAT, jointly issued Cai Shui 2008 Circular 1, “Circular 1.” According to Article 4 of Circular 1, distributions of accumulated profits earned by foreign investment enterprises, (“FIE”) prior to January 1, 2008 to their foreign investors will be exempt from withholding tax, (“WHT”) while distribution of the profits earned by a FIE after January 1, 2008 to its foreign investors shall be subject to WHT.

Dividend payments by PRC subsidiaries are limited by certain statutory regulations in the PRC. No dividends may be paid by PRC subsidiaries without first receiving prior approval from SAFE. Dividend payments are restricted to 90% of after tax profits.

Since the Company intends to reinvest its earnings to further expand its businesses in mainland China, its PRC subsidiaries do not intend to declare dividends to their immediate foreign holding companies in the foreseeable future. Accordingly, the Company has not recorded any deferred taxes in relation to WHT on the cumulative amount of undistributed retained earnings since January 1, 2008.

Should the Company’s PRC subsidiaries distribute all their profits generated after December 31, 2007, the aggregate withholding tax amount will be $8,726,331 and $6,817,768 as of December 31, 2012 and 2011, respectively.

The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of ASC Topic 740, Income Taxes. Since SkyPeople (China) intends to reinvest its earnings to further expand its businesses in mainland China, its PRC subsidiaries do not intend to declare dividends to their immediate foreign holding companies in the foreseeable future. Accordingly, the Company has not recorded any deferred taxes in relation to US tax on the cumulative amount of undistributed retained earnings since January 1, 2008.

Effective on January 1, 2008, the PRC Enterprise Income Tax Law, EIT Law, and Implementing Rules imposed a unified enterprise income tax rate of 25% on all domestic-invested enterprises and foreign-invested enterprises in the PRC, unless they qualify under certain limited exceptions. In December 2006, SkyPeople (China) was awarded the status of a nationally recognized High and New Technology Enterprise in Shaanxi Province, which entitled SkyPeople (China) to a tax-free treatment from January 2007 to December 2008. As such, starting from January 1, 2009, four of the Company’s subsidiaries in the PRC, including SkyPeople (China), Shaanxi Qiyiwangguo, Yingkou and Huludao Wonder, were subject to an enterprise income tax rate of 25%. 

The reconciliation of income tax expense at the U.S. statutory rate of 35% in 2012 and 2011, to the Company's effective tax rate is as follows:

	Year ended December 31,
	2012			2011
U.S. Statutory rate	$	9,118,943		$	6,727,227
Tax rate difference between China and U.S.		(2,703,421	)		(2,037,985	)
Change in Valuation Allowance		322,510			405,721
Permanent difference		133,206			(5,678	)
Effective tax rate	$	6,871,238		$	5,089,285

The provisions for income taxes are summarized as follows:	Year ended December 31,
	2012		2011
Current	$	6,787,529	$	5,263,570
Deferred		83,709		(174,285	)
Total	$	6,871,238	$	5,089,285

The tax effects of temporary differences that give rise to the Company's net deferred tax asset as of December 31, 2012 and 2011 are as follows:

	December 31,
	2012			2011
Net operating loss carryforward - United States	$	748,750		$	405,721
Accrued expenses		46,527			172,844
Others		23,529			1,441
		818,806			580,006
Less valuation allowance		(728,230	)		(405,721	)
Deferred tax assets	$	90,576		$	174,285