INCOME TAXES

6 Months Ended

Jun. 30, 2014

INCOME TAXES [Text Block]

NOTE 13 INCOME TAXES

The Company’s VIEs and subsidiaries incorporated in the PRC are subject to PRC enterprise income tax (“EIT”). Before January 1, 2008, the PRC EIT rate was generally 33%. In March 2007, the PRC government enacted a new PRC Enterprise Income Tax Law, or the New EIT Law, and promulgated related regulations, Implementation Regulations for the PRC Enterprise Income Tax Law. The New EIT Law and Implementation Regulations became effective on January 1, 2008. The New EIT Law, among other things, imposes a unified income tax rate of 25% for both domestic and foreign invested enterprises registered in the PRC.

The New EIT Law provides a grandfathering on tax holidays which were granted under the then effective tax laws and regulations. Therefore, one of the Company's VIEs, Daqing Shuaiyi, being engaged in growing and sales of organic and specialty food products, continued to be entitled to a preferential tax treatment: an EIT holiday for the two years ended December 31, 2006 and 2007 and a 50% reduction on the EIT rate for the three years ended December 31, 2008, 2009 and 2010.

Daqing Shuaiyi, Harbin Shuayi and Heilongjiang Shuaiyi are subject to an EIT rate of 25% for the six months ended June 30, 2014and year ended December 31, 2013. No provision for PRC taxes was made for Heilongjiang Shuaiyi which had no taxable income in the PRC.

Harbin Baixin has been subject to an EIT rate of 25% since its incorporation. No provision for PRC taxes was made as Harbin Baixin had no taxable income in the PRC.

No provision for other overseas taxes is made as none of Nutrastar, New Resources and Oriental Global has any taxable income in the U.S., British Virgin Islands or Hong Kong, respectively.

The Company’s income tax expense consisted of:

		For the Three Months				For the Six Months
		Ended June 30,				Ended June 30,
		2014		2013		2014		2013
Current income tax – PRC	$	2,338,917	$	2,120,129	$	3,497,461	$	3,399,869
Deferred		-		-		-		-
	$	2,338,917	$	2,120,129	$	3,497,461	$	3,399,869

A reconciliation of the provision for income taxes determined at the U.S. federal corporate income tax rate to the Company’s effective income tax rate is as follows:

		For the Three Months						For the Six Months
		Ended June 30,						Ended June 30,
		2014			2013			2014			2013
Pre-tax income	$	9,134,639		$	8,082,938		$	13,526,757		$	12,777,362
U.S. federal corporate income tax rate		34%			34%			34%			34%
Income tax computed at U.S. federal corporate income tax rate		3,105,777			2,748,199			4,599,097			4,344,303
Reconciling items:
Loss not recognized as deferred tax assets		81,592			119,306			182,364			185,841
Change in fair value of warrants		-			(59	)		-			(59	)
Rate differential for PRC earnings		(839,553	)		(753,489	)		(1,255,598	)		(1,193,597	)
Non-deductible expenses and non-reportable income		(8,899	)		6,172			(28,402	)		63,381
Effective tax expense	$	2,338,917		$	2,120,129		$	3,497,461		$	3,399,869

The Company had deferred tax assets as follows:

		June 30,2014			December 31,2013
Net operating losses carried forward	$	1,943,901		$	1,799,625
Less: Valuation allowance		(1,943,901	)		(1,799,625	)
Net deferred tax assets	$	-		$	-

As of June 30, 2014 and December 2013, Nutrastar had $5,717,356 and $5,293,016, respectively, of net operating loss carry forwards available to reduce future taxable income which will expire in various years through 2030. 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. Therefore, the Company recorded a full valuation allowance on its deferred tax assets.

As of June 30, 2014 and December 2013, the Company has no material unrecognized tax benefits which would favorably affect the effective income tax rate in future periods and does not believe that there will be any significant increases or decreases of unrecognized tax benefits within the next twelve months. No interest or penalties relating to income tax matters have been imposed on the Company during the three and six months ended June 30, 2014 and 2013, and no provision for interest and penalties is deemed necessary as of June 30, 2014 and December 31,2013.

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 its withholding agent. The statute of limitations extends to five years under special circumstances, which are not clearly defined. In the case of a related party transaction, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion.