Income Taxes

12 Months Ended

Dec. 31, 2015

Income Taxes [Text Block]

13. Income Taxes

(a) Corporate Income Tax (“CIT”)

YOD was incorporated in Nevada and is subject to U.S. federal and state income tax.

CB Cayman was incorporated in Cayman Islands as an exempted company and is not subject to income tax under the current laws of Cayman Islands.

YOD Hong Kong was incorporated in HK as a holding company. The statutory income tax rate in HK is 16.5% .

All of the Company’s income is generated in the PRC. WFOE, YOD WFOE, Sinotop Beijing, Zhong Hai Video, Jinan Zhong Kuan are PRC entities. The income tax provision of these entities is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in the PRC.

In accordance with the Corporate Income Tax Law of the PRC (“CIT Law”), effective beginning on January 1, 2008, 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 subject to the 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, and among other items, overall management and control over the production and business, personnel, accounting, and properties of an enterprise. If the Company’s non-PRC incorporated entities are deemed PRC tax residents, such entities would be subject to PRC tax under the CIT Law. Since our non-PRC entities have accumulated loss, the application of this tax rule will not result in any PRC tax liability, if our non-PRC incorporated entities are deemed PRC tax residents.

The CIT Law imposes a 10% withholding income tax, subject to reduction based on tax treaty where applicable, for dividends distributed by a foreign invested enterprise to its immediate holding company outside China. Under the PRC-HK tax treaty, the withholding tax on dividends is 5% provided that a HK holding company qualifies as a HK tax resident as defined in the tax treaty. No provision was made for the withholding income tax liability as the Company’s foreign subsidiaries were in accumulated loss.

Loss before tax and the provision for income tax benefit consists of the following components:

		2015			2014
Loss before tax	$	(8,575,369	)	$	(13,328,813	)
Deferred tax benefit of net operating loss
United States	$	-		$	-
PRC/Hong Kong		(34,448	)		(304,670	)
		(34,448	)		(304,670	)
Deferred tax benefit other than benefit of net operating loss
United States		-			-
PRC/Hong Kong		-			-
Total income tax benefit	$	(34,448	)	$	(304,670	)

A reconciliation of the expected income tax derived by the application of the 34.0% U.S. corporate income tax rate to the Company's loss before income tax benefit is as follows:

	2015	2014
U. S. statutory income tax rate	34.0%	34.0%
Non-deductible expenses	-5.1%	-2.5%
Non-deductible interest expenses	-0.5%	-6.1%
Non-taxable change in fair value warrant liabilities	0.8%	-1.6%
Non-taxable loss on contingent consideration	-	-0.4%
Forfeiture of capital loss	-0.7%	-3.2%
Increase in valuation allowance	-34.0%	-18.5%
Tax benefit from the lapse of the statute of limitations	6.8%	-
Others	-0.9%	0.5%
Effective income tax rate	0.4%	2.3%

Deferred income taxes are recognized for future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and income tax purposes using enacted rates expected to be in effect when such amounts are realized or settled. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2015 and 2014 are as follows:

		2015			2014
U.S. NOL	$	11,885,880		$	9,563,551
Foreign NOL		3,641,553			2,790,913
Accrued payroll and expense		237,076			479,116
Nonqualified options		768,071			829,354
Marketable securities		-			131,691
Capital loss carryover		-			72,660
Others	$	687,721		$	92,675
Total deferred tax assets		17,220,301			13,959,960
Less: valuation allowance		(16,695,412	)		(13,783,420	)
Deferred tax liabilities
Intangible assets		(502,363	)		(536,811	)
Others		(352,650	)		(4,301	)
Total deferred tax liabilities		(855,013	)		(541,112	)
Net deferred tax liability	$	(330,124	)	$	(364,572	)

As of December 31, 2015, the Company had approximately $27.1 million U.S domestic cumulative tax loss carryforwards and approximately $14.6 million foreign cumulative tax loss carryforwards, which may be available to reduce future income tax liabilities in certain jurisdictions. These U.S. and foreign tax loss carryforwards will expire beginning year 2028 through 2035 and year 2015 to year 2020, respectively. The non-recognition of the tax benefits, while reducing the net operating loss carryovers, gives rise to a capital loss carryover of approximately $165,000, which expired in 2015. Utilization of net operating losses may be subject to an annual limitation due to ownership change limitations provided in the Internal Revenue Code and similar state and foreign provisions. This annual limitation may result in the expiration of net operating losses before utilization.

Realization of the Company’s net deferred tax assets is dependent upon the Company’s ability to generate future taxable income in appropriate tax jurisdictions to obtain benefit from the reversal of temporary differences and net operating loss carryforwards. The valuation allowance increased approximately $2.9 million and $2.5 million during the years ended December 31, 2015 and 2014, respectively. The increase was primarily related to increases in net operating loss carryovers, which the Company does not expect to realize.

(b) Uncertain Tax Positions

Accounting guidance for recognizing and measuring uncertain tax positions prescribes a threshold condition that a tax position must meet for any of the benefit of uncertain tax position to be recognized in the financial statements. As of December 31, 2014, the unrecognized tax benefit of USD1,718,000 resulted from the capital transaction where the Company received the shares of a third-party company with a zero tax basis. The unrecognized tax benefit was reduced to zero as a result from the lapse of the statute of limitations in 2015. A reconciliation of the beginning and ending amounts of unrecognized tax benefit is as follows:

		2015			2014
Balance, beginning of year	$	584,451		$	584,451
Lapse of the statute of limitations		(584,451	)		-
Balance, end of year	$	-		$	584,451

 As of December 31, 2015 and 2014, the Company did not accrue any material interest and penalties.

The Company's United States income tax returns are subject to examination by the Internal Revenue Service for at least 2010 and later years. Due to the uncertainty regarding the filing of tax returns for years before 2007, it is possible that the Company is subject to examination by the IRS for earlier years. All of the Chinese tax returns for the Chinese operating companies are subject to examination by the Chinese tax authorities for all periods from the companies' inceptions in 2007 through 2015 as applicable.