Note 14. Taxes

12 Months Ended

Dec. 31, 2013

Notes

Note 14. Taxes

NOTE 14.  TAXES

Corporation income tax

The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made, as the Company had no U.S. taxable income for the years ended December 31, 2013 and 2012.

The Company’s Chinese subsidiaries are governed by the Income Tax Law of the PRC concerning the privately run and foreign invested enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments.

Based on management's present assessment, the Company has determined that it is more likely than not a deferred tax asset attributable to the future utilization of the net operating loss carry-forward as of December 31, 2013 will not be realized. Accordingly, the Company has provided a 100% allowance against the deferred tax asset in the financial statements at December 31, 2013. The Company will continue to review this valuation allowance and make adjustments as appropriate.

The Company has net operating loss carry-forwards in China and United States of approximately $10,000,000 and $7,000,000, respectively, which expire between 2014 and 2023.

The comparison of income tax expense at the U.S. statutory rate of 35% in 2013 and 2012, to the Company’s effective tax is as follows:

	Years ended December 31,
	2013	2012
U.S. Statutory rate of 35%	$     (881,345)	$  (1,793,692)
Tax rate difference between China and U.S.	245,150	425,418
Change in valuation allowance	399,056	1,170,407
Net operating loss expired	237,139	197,867
Tax paid for prior periods	-	102,918
Effective tax	$                     -	$       102,918

The provisions for income taxes are summarized as follows:

	Years ended December 31
	2013	2012
Current	$                       -	$        102,918
Deferred	-	-
Total	$                       -	$        102,918

The tax effects of temporary differences that give rise to the Company’s net deferred tax asset as of December 31, 2013 and 2012 are as follows:

		December 31
		2013	2012
Deferred tax assets (liabilities)
	Inventory markdown	$                 225,254	$            115,670
	Bad debt expense	167,347	160,448
	Depreciation	81,059	47,402
	Accrued taxes and other accruals	320,024	289,085
	Loss on impairment	33,500	33,500
	Net loss carryforward	5,117,460	4,776,211
	Gain on investment in JV	(840,957)	(840,957)
	Other	11,471	134,743
Gross deferred tax		5,115,158	4,716,102
	Valuation allowance	(5,115,158)	(4,716,102)
Net deferred tax		$                           -	$                     -

Based on management's present assessment, the Company has determined that it is more likely than not a deferred tax asset attributable to the future utilization of the net operating loss carry-forward as of December 31, 2013 will not be realized. Accordingly, the Company has provided a 100% allowance against the deferred tax asset in the financial statements at December 31, 2013 and 2012, respectively. The Company will continue to review this valuation allowance and make adjustments as appropriate.

Value added tax (“VAT”)

Enterprises or individuals who sell commodities, engage in repair and maintenance or import or export goods in the PRC are subject to a value added tax in accordance with the PRC laws. The value added tax standard rate is 17% of the gross sales price. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s finished products can be used to offset the VAT due on the sales of the finished products.