Income taxes

9 Months Ended

Mar. 31, 2016

Income taxes [Text Block]

Note 11 – Income taxes

(a) Corporate income tax

China ACM was organized in the United States. China ACM had no taxable income for United States income tax purposes for the nine months ended March 31, 2016. As of March 31, 2016, China ACM’s net operating loss carry forward for United States income taxes was approximately $0.9 million. The net operating loss carry forward are available to reduce future years’ taxable income through year 2033. Management believes that the realization of the benefits from these losses appears uncertain due to the Company’s operating history and continued losses in the United States. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. There was insignificant change in the valuation for deferred tax assets for each of the three and nine months ended March 31, 2016. For the three and nine months ended March 31, 2015, valuation allowance for deferred tax assets decreased by approximately $0.1 million. Management reviews this valuation allowance periodically and makes adjustments accordingly.

BVI-ACM was incorporated in the British Virgin Islands (“BVI”) and where its income tax rate is $0 under the current laws of the BVI.

China-ACMH and VIEs-Chinese operations

All of the Company’s income is generated in the PRC, through VIEs. The Company’s VIEs had cumulative losses of approximately $5.7 million and $1.0 million as of March 31, 2016 and June 30, 2015, respectively. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings.

China-ACMH and VIEs are governed by the income tax laws of the PRC and the income tax provision in respect to operations in the PRC is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Chinese Enterprise Income Tax (“EIT”) law, the statutory corporate income tax rate applicable to most companies is 25%. In 2009, Xin Ao applied and received an Enterprise High-Tech Certificate. The certificate was awarded based on Xin Ao’s involvement in producing high-tech products, its research and development, as well as its technical services. As granted by the State Administration of Taxation of the PRC, Xin Ao is entitled to a reduction in its income tax rate from 25% to 15% until 2018.

In accordance with the EIT Law, enterprises established under the laws of foreign countries or regions and whose “place of effective management” is located within the PRC territory are considered PRC resident enterprises and are subject to the PRC income tax at the rate of 25% on their worldwide income. The definition of “place of effective management” refers to an establishment that exercises, in substance, and among other items, overall management and control over the production and business, personnel, accounting, and properties of an enterprise. No detailed interpretation of guidance has been issued to define “place of effective management”. Furthermore, the administrative practice associated with interpreting and applying the concept of “place of effective management” is unclear. If the Company’s non-PRC incorporated entities are deemed PRC tax residents, such entities would be subject to PRC tax under the EIT Law. The Company has analyzed the applicability of this law, and for each of the applicable periods presented, the Company has not accrued for PRC tax on such basis. The Company continues to monitor changes in the interpretation and/or guidance of this law.

The EIT Law also imposes a 10% withholding income tax, subject to reduction based on tax treaties where applicable, for dividends distributed by a foreign invested enterprise to its immediate holding company outside China. Such dividends were exempted from PRC tax under the previous income tax law and regulations. The Company intends to permanently reinvest undistributed earnings of its Chinese operations located in the PRC. As a result, there is no deferred tax expense related to withholding tax on the future repatriation of these earnings.

(Loss) income before provision for income taxes consisted of:

		Three months ended
		March 31,
		2016			2015
USA and BVI	$	(71,913	)	$	(451,045	)
China		(2,555,954	)		1,808,542
	$	(2,627,867	)	$	1,357,497

		Nine months ended
		March 31,
		2016			2015
USA and BVI	$	(820,759	)	$	(1,110,570	)
China		(4,650,896	)		(3,361	)
	$	(5,471,655	)	$	(1,113,931	)

Provision for income taxes consisted of:

		Three months ended
		March 31,
		2016		2015
Current provision:
USA	$	-	$	-
China		-		(203	)
Total current provision		-		(203	)
Deferred provision:
USA		-		-
China		-		(379,868	)
Total deferred provision		-		(379,868	)
Total provision for income taxes	$	-	$	(380,071	)

		Nine months ended
		March 31,
		2016		2015
Current provision:
USA	$	-	$	-
China		-		(330,029	)
Total current provision		-		(330,029	)
Deferred provision:
USA		-		-
China		-		(396,355	)
Total deferred provision		-		(396,355	)
Total provision for income taxes	$	-	$	(726,384	)

Significant components of deferred tax assets were as follows:

		March 31,			June 30,
		2016			2015
Deferred tax assets - current
Allowance for doubtful accounts	$	4,349,394		$	4,591,891
Valuation allowance		(2,609,637	)		(2,755,134	)
Total deferred tax assets - current	$	1,739,757		$	1,836,757
Deferred tax assets - non-current
Net operating loss carryforward in the U.S.	$	309,440		$	309,393
Impairment loss of long-lived assets		-			-
		309,440			309,393
Valuation allowance		(309,440	)		(309,393	)
Total deferred tax assets - non-current	$	-		$	-

As of March 31, 2016 and June 30, 2015 the Company believes it is more likely than not that its China operations will be unable to fully utilize its deferred tax assets related to provision for doubtful accounts. As such, as of March 31, 2016 and June 30, 2015, the Company provided approximately $2.6 million and $2.8 million of valuation allowance to the deferred tax assets related to its China operations, all of which was against deferred tax assets – current related to its allowance for doubtful accounts, as management estimates that certain bad debts may not be deductible against future pre-tax income by the Chinese tax authorities.

The Company has incurred losses from its U.S. operations during all periods presented. Accordingly, management provided approximately $0.3 million of valuation allowance against the deferred tax assets related to the Company’s U.S. operations as of March 31, 2016 and June 30, 2015, since the deferred tax benefits of the net operating loss carry forward in the U.S. might not be utilized.

Changes to valuation allowance for deferred tax assets were as follows:

		Valuation
		Allowance
For deferred tax assets - current
As of June 30, 2015	$	2,755,134
Allowance for doubtful accounts		-
Increased allowance rate		-
Effect of exchange rate difference		(145,499	)
As of March 31, 2016	$	2,609,635

		Valuation
		Allowance
For deferred tax assets – noncurrent
As of June 30, 2015	$	309,393
Net operating loss carryforward in the U.S.		47
Impairment loss of long-lived assets		-
As of March 31, 2016	$	309,440

Taxes payable consisted of the following:

		March 31,		June 30,
		2016		2015
Income taxes payable	$	-	$	-
Other taxes payable		53,455		12,859
Total taxes payable	$	53,455	$	12,859

(b) Uncertain tax positions

There were no uncertain tax positions as of March 31, 2016 and June 30, 2015. Management does not anticipate any potential future adjustments which would result in a material change to its tax positions. For the nine months ended March 31, 2016 and 2015, the Company did not incur any tax related interest and penalties.