NOTE 13 - INCOME TAXES

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Text Block]

NOTE 13 – INCOME TAXES

China Power was incorporated in the United States of America (“USA”) and the Company has operations in two tax jurisdictions - the USA and the PRC. The Company generated substantially all of its net income from its PRC operations for the years ended December 31, 2012 and 2011 and has recorded income tax provision for the periods.

The Company’s China operation is subject to the PRC standard enterprise income tax rate of 25% based on its taxable net profit. However, due to its high technology products status, the National Tax Bureau in Xi’an High-Tech Development Zone granted Zhongxi the annual tax exemptions for the years ended December 31, 2005 and 2004 and a reduced tax rate of 15% for the years ended December 31, 2012 and 2011 and as long as Zhongxi meets the high-tech enterprise qualification.

Current PRC Tax Law also imposes a 10% withholding tax on all dividends paid by PRC companies to non-PRC shareholders  unless any foreign shareholder’s jurisdiction has a tax treaty with the PRC that provides for a different withholding arrangement and contains rules governing such matters as international transfer pricing.  No provision for withholding nor other tax on the undistributed earnings of the PRC companies has been made as the earnings of these PRC companies, in the opinion of the management, will be reinvested indefinitely.

The provision for income taxes consists of the following:

	Years Ended December 31,
	2012		2011
Current tax
PRC	$	1,340,909	$	1,277,126
Total	$	1,340,909	$	1,277,126

The reconciliation of USA statutory income tax rate to the Company’s effective income tax rate is as follows:

	Year Ended December 31,
	2012			2011
Income tax at USA statutory rate (34%)	$	2,634,314		$	2,449,056
State tax, net of federal effect		-			-
Foreign rate differential		(1,566,653	)		(1,474,341	)
Change in valuation allowance		273,248			302,411
Provision for income taxes	$	1,340,909		$	1,277,126

As of December 31, 2012, the Company had federal and state net operating loss carryforwards of approximately $2,574,361 available to offset future taxable income in the USA. The net operating loss carryforwards will expire, if unused, in varying amounts through the year ending December 31, 2032. The deferred tax assets for the USA operation at December 31, 2012 consists mainly of net operating loss carryforwards and for which a full valuation allowance has been provided, as the management believes it is more likely than not that these assets will not be realized in the future.

Uncertain Tax Positions

Interest associated with unrecognized tax benefits are classified as income tax and penalties are classified in selling, general and administrative expenses in the consolidated statements of operations and comprehensive income.

For the year ended December 31, 2012 and 2011, the Company had no unrecognized tax benefits and related interest and penalties expenses.  Currently, the Company is not subject to examination by major tax jurisdictions.