TAXES

3 Months Ended

Mar. 31, 2015

TAXES [Text Block]

NOTE 19 – TAXES

(a) Corporation Income Tax

In accordance with the relevant tax laws and regulations of the PRC, applicable corporate income tax (“CIT”) rate is 25%. However, the Kandi Vehicle, qualified as a high technology company in China, was entitled to pay a reduced income tax rate of 15%. The applicable CIT rate of each of Kandi Vehicle’s three subsidiaries, Kandi New Energy, Yongkang Scrou and Kandi Wanning, the JV Company and its subsidiaries and the Service Company was 25%.

The Company, qualified as a high technology company in China, was entitled to pay a reduced CIT rate of 15%. After combining with the research and development tax credit of 25% on certain qualified research and development expenses, the final effective reduced income tax rate was 15.67% . The combined tax benefits were 44.00% . The actual effective income tax rate was reduced from 25% to 14% in the first quarter of 2015.

According to the PRC CIT reporting system, the CIT sales cut-off base is concurrent with the value-added tax (“VAT”), which should be reported to the State Administration of Taxation (“SAT”) on a quarterly basis. Since the VAT and CIT are accounted for on a VAT tax basis that recorded all sales on a “State provided official invoices” reporting system, the Company is reporting the CIT according to the SAT prescribed tax reporting rules. Under the VAT tax reporting system, sales cut-off is not done on an accrual basis but rather on a VAT taxable reporting basis. Therefore, when the Company adopted U.S. GAAP using an accrual basis, the sales cut-off CIT timing (due to the VAT reporting system) created a temporary sales cut-off timing difference. This difference is reflected in the deferred tax assets or liabilities calculations on the income tax estimate reported in the Company’s annual report on Form 10-K.

Effective January 1, 2007, the Company adopted ASC 740, Income Taxes. The interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.

Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

As of March 31, 2015, the Company did not have a liability for unrecognized tax benefits. The Company files income tax returns to the U.S. Internal Revenue Services (“IRS”) and states where the Company has operations. The Company is subject to U.S. federal or state income tax examinations by the IRS and relevant state tax authorities for years after 2006. During the periods open to examination, the Company has net operating loss carry forwards (“NOLs”) for U.S. federal and state tax purposes that have attributes from closed periods. Since these NOLs may be utilized in future periods, they remain subject to examination. The Company also files certain tax returns in China. As of March 31, 2015, the Company was not aware of any pending income tax examinations by U.S. and China tax authorities. The Company's policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of March 31, 2015, the Company has no accrued interest or penalties related to uncertain tax positions. The Company has not recorded a provision for U.S. federal income tax for the year ended March 31, 2015 due to the accumulated net operating loss carry forward from prior years in the United States.

Income tax expense (benefit) for the three months ended March 31, 2015 and 2014 is summarized as follows:

		For the Three Months Ended
		March 31,
		(Unaudited)
		2015		2014
Current:
Provision for CIT	$	1,008,909	$	108,101
Provision for Federal Income Tax		-		-
Deferred:
Provision for CIT		-		-
Income tax expense (benefit)	$	1,008,909	$	108,101

The Company’s income tax expense (benefit) differs from the “expected” tax expense for the three months ended March 31, 2015 and 2014 (computed by applying the U.S. Federal Income Tax rate of 34% and PRC CIT rate of 25%, respectively, to income before income taxes) as follows:

		For the Three Months Ended
		March 31,
		(Unaudited)
		2015			2014
Computed “expected” expense	$	3,109,591		$	(3,776,682	)
Favorable tax rate		(2,416,981	)		(183,878	)
Permanent differences		(27,713	)		(79,804	)
Valuation allowance		344,012			4,148,465
Income tax expense (benefit)	$	1,008,909		$	108,101

The tax effects of temporary differences that give rise to the Company’s net deferred tax assets and liabilities as of March 31, 2015 and December 31, 2014 are summarized as follows:

		March			December
		31, 2015			31, 2014
		(Unaudited)
Current portion:
Deferred tax assets (liabilities):
Expense	$	(88,864	)	$	(80,016	)
Subtotal		(88,864	)		(80,016	)
Deferred tax assets (liabilities):
Sales cut-off difference derived from Value Added Tax reporting system to calculate PRC Corporation Income Tax in accordance with the PRC State Administration of Taxation		(43,535	)		(26,226	)
Other					(124,623	)
Subtotal		(43,535	)		(150,849	)
Total deferred tax assets (liabilities) – current portion		(132,399	)		(230,864	)
Non-current portion:
Deferred tax assets (liabilities):
Depreciation		(508,687	)		(551,697	)
Loss carried forward		344,012			3,025,997
Valuation allowance		(344,012	)		(3,025,997	)
Subtotal		(508,687	)		(551,697	)
Deferred tax liabilities:
Accumulated other comprehensive gain		(2,035,134	)		(1,715,028	)
Subtotal		(2,035,134	)		(1,715,028	)
Total deferred tax assets – non-current portion		(2,543,821	)		(2,266,725	)
Net deferred tax assets (liabilities)	$	(2,676,220	)	$	(2,497,589	)

(b) Tax Benefit (Holiday) Effect

For the three months ended March 31, 2015 and 2014, the PRC CIT rate was 25%. Certain subsidiaries of the Company are entitled to tax benefit (holidays) for the three months ended March 31, 2015 and 2014.

The combined effects of the income tax expense exemptions and reductions available to the Company for the three months ended March 31, 2015 and 2014 are as follows:

		For the Three Months Ended
		March 31,
		(Unaudited)
		2015		2014
Tax benefit (holiday) credit	$	2,416,981	$	183,878
Basic net income per share effect	$	0.052	$	0.005