7.	TAXATION

Enterprise income tax

Cayman Islands

The Company is incorporated in the Cayman Islands and conducts substantially all of its business through its PRC subsidiaries and VIEs. Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gains. In addition, upon payments of dividends by these entities to their shareholders, no Cayman Islands withholding tax will be imposed.

British Virgin Islands

Cheerbright is incorporated in the British Virgin Islands and conducts substantially all of its businesses through its PRC subsidiary and VIEs. Under the current laws of the British Virgin Islands, Cheerbright is not subject to tax on income or capital gains. In addition, upon payments of dividends by these entities to their shareholders, no British Virgin Islands withholding tax will be imposed.

Hong Kong

Autohome HK is incorporated in Hong Kong on March 16, 2012. In October 2013, Autohome HK acquired Autohome Media, a Hong Kong advertising and marketing company. Also in 2015, three new entities are established in Hong Kong. Companies registered in Hong Kong are subject to Hong Kong Profits Tax on the taxable income as reported in their respective statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5% in Hong Kong. For the years ended December 31, 2014, 2015 and 2016, the Company did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong during this period. Under the Hong Kong tax law, subsidiaries in Hong Kong are exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.

The PRC

In September 2010, Autohome WFOE was recognized as a “High-New Technology Enterprise” (“HNTE”), and is eligible for a 15% preferential tax rate effective from 2010 to 2015 including the renewal period of three years. In December 2016, Autohome WFOE successfully reapplied for the HNTE and obtained the HNTE certificate, enabling Autohome WFOE to continue to enjoy 15% preferential tax rate from 2016 to 2018. In July 2015, Beijing Autohome Technologies Co., Ltd. obtained the certificate of HNTE and is eligible for a 15% preferential tax rate from 2015 to 2017. Beijing Prbrownies was recognized as an HNTE in February 2016, qualifying it for the preferential 15% enterprise income tax rate from 2015 to 2017. Besides being an HNTE, Beijing Prbrownies was also a software enterprise. Pursuant to the Circular on Issues concerning Preferential Enterprise Income Tax Policies for Software and Integrated Circuit Industries in May 2016, the eligible software enterprises would enjoy preferential tax rate policy, whereby the enterprise will be entitled to two-year enterprise income tax exemption and reduced enterprise income tax rate of 12.5% for the three years thereafter, depending on the results of annual tax filing and examination afterwards instead of pre-approval process. Beijing Prbrownies started to make profit since 2015, and it passed the tax filing and examination as an eligible software enterprise by the relevant tax authorities in 2016, qualifying it for the exemption of enterprise income tax for the year 2015. A reversal of RMB173,557 (US$24,997) was recorded in 2016 for the change in enacted tax rate, composed of current income tax expense of RMB181,586 (US$26,153) and deferred income tax expense of RMB8,029 (US$1,156 ). For the tax year of 2016, 15% preferential tax rate of HNTE was applied for Beijing Prbrownies in accrual of income tax expense, considering that the uncertainty in the results of tax filing and examination was not eliminated yet. The aggregate effects of the preferential tax rate were RMB89,394, RMB56,389 and RMB330,198 (US$47,558) for the years ended December 31, 2014, 2015 and 2016, respectively. The basic earnings per share effects related to the preferential tax rate were RMB0.84, RMB0.50 and RMB2.89 (US$0.42) for the years ended December 31, 2014, 2015 and 2016, respectively.

The Company’s remaining PRC subsidiaries and all the VIEs were subject to Enterprise Income Tax (“EIT”) at a rate of 25% for the years ended December 31, 2014, 2015 and 2016.

Under the New EIT Law, dividends paid by PRC enterprises out of profits earned post-2007 to non-PRC tax resident investors are subject to PRC withholding tax of 10%. A lower withholding tax rate may be applied based on applicable tax treaty with certain countries.

The New EIT Law also provides that enterprises established under the laws of foreign countries or regions and whose “place of effective management” is located within the PRC are considered PRC tax resident enterprises and subject to PRC income tax at the rate of 25% on worldwide income. The definition of “place of effective management” refers to an establishment that exercises, in substance, overall management and control over the production and business, personnel, accounting, properties, and other aspects of an enterprise. As of December 31, 2016, no detailed interpretation or guidance has been issued to define “place of effective management”. Furthermore, as of December 31, 2016, the administrative practice associated with interpreting and applying the concept of “place of effective management” is unclear. If the Company is deemed as a PRC tax resident, it would be subject to PRC tax under the New EIT Law. The Company has analyzed the applicability of this law and believes that the chance of being recognized as a tax resident enterprise is remote for PRC tax purposes. .

The Company had minimal operations in jurisdictions other than the PRC. Income/(loss) before income tax expense consists of:


	Year ended December 31,
	2014			2015			2016
	RMB			RMB			RMB			US$
PRC		946,261			1,292,104			1,263,223			181,943
Non PRC		(4,800	)		(15,913	)		(14,371	)		(2,070	)

		941,461			1,276,191			1,248,852			179,873

The income tax expense is comprised of:


	Year ended December 31,
	2014		2015			2016
	RMB		RMB			RMB			US$
Current		187,447		292,017			136,429			19,650
Deferred		5,334		(6,475	)		(103,800	)		(14,950	)

		192,781		285,542			32,629			4,700

The reconciliation of income tax expense for the years ended December 31, 2014, 2015 and 2016 is as follows:


	Year ended December 31,
	2014			2015			2016
	RMB			RMB			RMB			US$
Income before income tax expense		941,461			1,276,191			1,248,852			179,873
Income tax expense computed at applicable tax rates (25%)		235,365			319,047			312,213			44,969
Non-deductible expenses		8,344			16,372			25,798			3,716
Change in valuation allowances		5,493			16,054			47,006			6,770
Outside basis difference		27,789			(17,329	)		(28,265	)		(4,071	)
Effect of international tax rate difference		1,200			3,978			3,593			517
Interest expense relating to unrecognized tax benefits		3,984			3,809			2,482			357
Effect of preferential tax rate		(89,394	)		(56,389	)		(330,198	)		(47,558	)

Income tax expense		192,781			285,542			32,629			4,700

Deferred tax

The significant components of deferred taxes are as follows:


	December 31,
	2015			2016
	RMB			RMB			US$
Deferred tax assets
Current
Allowance for doubtful accounts		937			7,066			1,017
Accrued staff cost		3,396			3,166			456
Accrued expenses		8,972			52,497			7,561
Revenue recognition		30,912			42,062			6,059
Tax losses		4,071			1,206			174
VAT refund		4,111			3,598			518
Less: Valuation allowances		(6,422	)		(10,367	)		(1,493	)

Net current deferred tax assets		45,977			99,228			14,292

Non-current
Tax losses		17,239			82,735			11,916
Less: Valuation allowances		(17,239	)		(60,300	)		(8,685	)

Net non-current deferred tax assets		—			22,435			3,231

Total deferred tax assets		45,977			121,663			17,523

Deferred tax liabilities
Non-current
Intangible assets and internally-developed software		8,539			8,690			1,251
Outside basis difference		481,371			453,106			65,261

Total non-current deferred tax liabilities		489,910			461,796			66,512

Total deferred tax liabilities		489,910			461,796			66,512

In assessing the realizability of deferred tax assets, the Group has considered whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Group records a valuation allowance to reduce deferred tax assets to a net amount that management believes is more-likely-than-not of being realizable based on the weight of all available evidence. The Company recorded valuation allowances against the deferred tax assets of eleven and thirteen PRC subsidiaries and VIEs as of December 31, 2015 and 2016, respectively, due to the cumulative tax loss positions and insufficient forecasted future taxable income.

As of December 31, 2016, the Group had net operating losses of approximately RMB335,764 (US$48,360), which can be carried forward to offset taxable income. The net operating loss will start to expire in 2017 if not utilized.

As of December 31, 2015 and 2016, the Company intended to indefinitely reinvest the undistributed earnings of its PRC subsidiaries. As of December 31, 2015 and 2016, the total amount of undistributed earnings from the Company’s PRC subsidiaries that are considered to be permanently reinvested was RMB2,330,698 and RMB3,616,426 (US$520,874), respectively. As of December 31, 2015 and 2016, determination of the amount of unrecognized deferred tax liability related to the earnings that are indefinitely reinvested is not practical.

Unrecognized tax benefits

As of December 31, 2015 and 2016, the Company recorded an unrecognized tax benefit of RMB32,596 and RMB34,977 (US$5,038), respectively, of which nil and nil, respectively, are presented on a net basis against the deferred tax assets related to tax loss carry forwards on the consolidated balance sheets. This represents the difference between the amount of benefit recognized in the statement of financial position and the amount taken or expected to be taken in a tax return. It is possible that the amount of uncertain tax position will change in the next twelve months, however, an estimate of the range of the possible outcomes cannot be made at this time. As of December 31, 2015 and 2016, unrecognized tax benefits of RMB19,951 and RMB19,850 (US$2,859), respectively, if ultimately recognized, will impact the effective tax rate.

A roll-forward of unrecognized tax benefits is as follows:


	December 31,
	2015		2016
	RMB		RMB			US$
Beginning balance		17,274		22,003			3,169
Additions based on tax positions related to current year		4,729		—			—
Decreases based on tax positions related to prior years		—		(101	)		(15	)

Ending balance		22,003		21,902			3,154

During the years ended December 31, 2014, 2015 and 2016, the Company recorded late payment interest expense of RMB3,984, RMB3,809 and RMB2,482 (US$357), and penalties of nil, nil and nil, respectively, as part of income tax expense. As of December 31, 2015 and 2016, the Company recorded RMB10,593 and RMB13,075 (US$1,884) for late payment interest expense, and nil and nil for penalties.

The tax years ended December 31, 2012 through 2016 for the Company’s PRC subsidiaries and VIEs remain subject to examination by the PRC tax authorities.