16. Taxes

(a)

Corporate Income taxes

The Company is subject to income taxes on an entity basis on income arising in or derived from the location in which each entity is domiciled.

Entity		Income Tax Jurisdiction
Andatee Marine Fuel Services Corp.		U.S.A
Goodwill Rich International		Hong Kong
Fusheng, Xingyuan and their subsidiaries		PRC

United States

The parent Company Andatee China Marine Fuel Services Corp. was incorporated in the United States and has incurred net operating losses for U.S. federal income tax purposes as of September 30, 2013. Andatee had loss carry forwards of approximately 1,700,000 for U.S. income tax purposes available for offsetting against future taxable U.S. income, expiring in 2033. Management believes that the realization of the benefits from these losses is uncertain due to its history of continuing losses in the United States. Accordingly, a full valuation allowance has been provided and no deferred tax asset has been recorded. The valuation allowance as of September 30, 2013 and December 31, 2012 was approximately $600,000 and $306,000, respectively. The changes in valuation allowance for the nine months ended September 30, 2013 and 2012 was $294,000 and $-0-, respectively.

Hong Kong

The Company’s wholly owned subsidiary Goodwill Rich was incorporated in Hong Kong and is subject to Hong Kong corporate income tax at a rate of 16.5% on the estimated assessable profits arising from Hong Kong. Goodwill Rich has not earned any income that was derived in Hong Kong since inception and therefore was not subject to Hong Kong income tax. As of September 30, 2013 and December 31, 2012, the estimated net operating loss carry forwards for Hong Kong income tax purposes amounted to approximately $3,300,000, which may be available to reduce future years’ taxable income. Management believes that the realization of the benefits arising from this loss appears to be uncertain due to the Company’s limited operating history and continuing losses for Hong Kong income tax purposes. Accordingly, the Company has provided a 100% valuation allowance at September 30, 2013 and December 31, 2012, and no deferred tax asset has been recorded. The valuation allowance as of September 30, 2013 and December 31, 2012 was approximately $540,000 and $428,000, respectively. The changes in valuation allowance for the nine months ended September 30, 2013 and 2012 was $112,000 and $-0-, respectively.

PRC

The Company’s wholly owned subsidiary Dalian Fusheng and its subsidiaries, VIE Dalian Xingyuan and its subsidiary in China are governed by the Income Tax Law of the People’s Republic of China, which are currently subject to tax at a statutory rate of 25% on net income reported after appropriated tax adjustments.

The following table reconciles the statutory rates to the Company’s effective tax rate for the periods indicated:

	September 30,			September 30,
	2013			2012
U.S. Statutory rates		34	%		34	%
Foreign income not recognized in the U.S.		(34)			(34)
Hong Kong income tax		-			-
China Statutory income tax rate		25			25
Non-deductible expenses-permanent difference (Note A)		176.4			-
Operating loss carry-forward		(25.2)			(25)
Effective tax rate		176.2	%		0	%

Note A: non-deductible expenses primarily included legal, accounting and other consulting expenses of Hong Kong Goodwill Rich which are not expected to be deductible for Hong Kong income taxes in the future.

The provision for income taxes consists of taxes on income from operations plus unrecognized tax benefits plus changes in deferred taxes for the periods ended:

	September 30, 2013		September 30, 2012
Current	$	689,407	$	100,332
Deferred		187,900		(559,495)
Total	$	877,307	$	(459,163)

Deferred income taxes reflect the net effects of temporary difference between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes, and operating loss carry-forward. Some of the Company’s subsidiaries have loss carryovers that can only be used to offset their own future taxable income. The loss carry forward for those subsidiaries amounted to approximately $4,642,000 as of September 30, 2013 and expire through 2018. The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized.

The Company considers many factors when assessing the likelihood of future realization of the deferred tax assets, including its recent cumulative earnings experience, expectation of future income, the carry forward periods available for tax reporting purposes, and other relevant factors.

For the nine months ended September 30, 2013, management estimated that net operating loss of certain PRC subsidiaries may not be realizable in the near future. Therefore, a 100% valuation allowance of $1,178,242 has been provided against the deferred tax assets of these subsidiaries. For the nine months ended September 30, 2013 and 2012, management concluded PRC deferred tax assets for the Company’s remaining subsidiaries would be realized in the future. Accordingly, the Company recorded a deferred tax benefit of $187,900 and $559,495 from loss carryover for the nine months ended September 30, 2013 and 2012, respectively. The Company believes it can utilize the deferred tax assets to offset future taxable income.

The components of deferred tax assets as of September 30, 2013 and December 31, 2012 consist of the following:

	September 30, 2013		December 31, 2012
Net operating loss of subsidiaries	$	1,185,137	$	839,409
Temporary difference		682,412		-
Effect of foreign currency exchange rate		(16,459)		1,131
Total		1,851,090		840,540
Less: valuation allowance		(1,178,242)		-
Deferred tax assets	$	672,848	$	840,540

As of September 30, 2013, the tax years ended December 31, 2008 through December 31, 2012 for the Company’s PRC entities remain open for statutory examination by PRC tax authorities.

(b) Value added tax

The Company is subject to a value added tax (“VAT”) for selling merchandise. The applicable VAT rate is 17% for products sold in the PRC. The amount of VAT liability is determined by applying the applicable tax rate to the invoiced amount of goods sold (output VAT) less VAT paid on purchases made with the relevant supporting invoices (input VAT). Under the commercial practice of the PRC, the Company pays VAT based on tax invoices issued. The tax invoices may be issued subsequent to the date on which revenue is recognized, and there may be a considerable delay between the date on which the revenue is recognized and the date on which the tax invoice is issued.

In the event that the PRC tax authorities dispute the date on which revenue is recognized for tax purposes, the PRC tax office has the right to assess a penalty based on the amount of the taxes which are determined to be late or deficient, and will be expensed in the period if and when a determination is made by the tax authorities

( c ) Taxes Payable

Taxes Payable consisted of the followings:

	September 30,		December 31,
	2013		2012
Income Tax Payable	$	1,069,119	$	272,557
VAT Payable		4,775,580		1,765,953
Other Tax Payable		797,980		681,007
Total	$	6,642,679	$	2,719,517