Income Taxes

12 Months Ended

Dec. 31, 2013

Income Taxes [Text Block]

Note 9 - Income Taxes

Local PRC Income Tax

Pursuant to the tax laws of the PRC, general enterprises are subject to income tax at 25%.

The Company operates in a privileged economic zone which entitles it to certain tax benefits (tax holiday) as follows:

• Shiner Industrial - a tax rate of 15% from January 1, 2009 to December 31, 2014 since it is recognized as a high-tech enterprise.

• Zhuhai - exemption from federal tax from January 1, 2008 to December 31, 2009. In addition, it also enjoyed a 50% federal tax reduction from January 1, 2010 to December 31, 2012.

Shiner Industrial acquired all of the assets of Shiny-Day and Modern in 2009, partially in response to the expiration of the tax holiday.

According to the new PRC income tax law, for enterprises to which the 15% tax rate was applicable previously, these rates shall apply from 2007 to 2012:

		Income Tax Rate-
Year	Tax Rate	Shiner Industrial
2007	15%	7.5%
2008	18%	9%
2009	20%	15%
2010	22%	15%
2011	24%	15%
2012	25%	15%

Income tax expense reflected in the consolidated statements of operations and other comprehensive loss consist of the following for 2013 and 2012:

		2013		2012
Current expense:
Federal	$	-	$	-
State		-		-
Foreign		414,693		546,057
		414,693		546,057
Deferred expense:
Federal		-		-
State		-		-
Foreign		-		-
		-		-
Total income tax expense	$	414,693	$	546,057

The components of deferred income tax assets and liabilities as of December 31, 2013 and 2012 are as follows:

		2013			2012
Deferred tax assets:
Net operating loss	$	598,000		$	552,000
Total deferred tax assets		598,000			552,000
Less valuation allowance		(598,000	)		(552,000	)
	$	-		$	-

A reconciliation of tax at United States (“US”) federal statutory rate to provision for income tax recorded in the financial statements for 2013 and 2012 is as follows:

	2013	2012
Tax provision (benefit) at statutory rate	( 34)%	( 34)%
Foreign tax rate difference	9%	9%
US and Chinese current NOL for which no benefit is realized	48%	40%
Effect of tax holiday	0%	( 10)%
Effective rate	23%	5%

The effect of the change of tax status was accounted for in accordance with FASB ASC Sub-Topic 740 - 10 - 25, which states that the effect of a change in tax status is computed as of the date of change and is included in the tax provision for continuing operations. Management believes the local tax authorities would not have waived past taxes had it not been for the change in the Company’s subsidiary’s tax status.

If the Company had not been exempt from income taxes due to operating in a privileged economic zone, for 2012 net loss would have been increased by $167,000. The net effect on EPS had income tax been applied at the regular rates would have been $0.01.

Foreign pretax loss approximated ($1,638,000) and $(6,042,000) for 2013 and 2012 respectively. Pretax earnings of a foreign subsidiary are subject to US taxation when effectively repatriated. The Company provides income taxes on the undistributed earnings of non-US subsidiaries except to the extent such earnings are indefinitely invested outside the US. At December 31, 2013, $12,272,000 of accumulated undistributed earnings of non-US subsidiaries was indefinitely invested. At the existing US federal income tax rate, additional taxes of $1,384,000 would have to be provided if such earnings were remitted currently.