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

 

 

Dragon Lead is incorporated in the BVI, and under current laws of the BVI, income earned is not subject to income tax.

 

 

The Company intends to reinvest its foreign profits indefinitely in order to avoid a tax liability upon repatriation to the United States. Since the U.S. holding company does not have any earnings and profits, distributions made in 2014 were deemed as a return of capital for U.S. income tax purpose.

 

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a U.S. corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company has determined that the Company’s VIE in PRC does not qualify as a reportable controlled foreign corporation (“CFC”) in accordance with its understanding of the Act and guidance available as of the date of this filing and as a result the Company assessed there was no significant income tax impact during the period in which the legislation was enacted. On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company has determined that the Company’s VIE in PRC does not qualify as a reportable CFC, therefore it is not necessary to record any income tax provision in connection with the transition tax on the mandatory deemed repatriation of foreign earnings at December 31, 2017. Additional work is necessary to do a more detailed analysis of the Act as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in fiscal 2018 when the analysis is complete.

 

Income (loss) from continuing operations before income taxes was allocated between the U.S. and foreign components for the year ended December 31, 2017, 2016 and 2015:

 

		For the years ended December 31,
		2017			2016			2015
United States		$	(1,331,862)		$	(1,010,848)		$	(1,833,064)
Foreign			36,699,373			126,541,875			29,733,565
		$	35,367,511		$	125,531,027		$	27,900,501

  

Significant components of the income tax provision were as follows for the years ended December 31, 2017, 2016 and 2015: 

 

		For the years ended December 31,
		2017			2016			2015
Current tax provision
Federal		$	-		$	-		$	-
State			-			-			-
Foreign			17,678,757			33,055,811			4,488,815
		$	17,678,757		$	33,055,811		$	4,488,815
Deferred tax provision (benefit)
Federal			-			-			-
State			-			-			-
Foreign			(8,503,898)			(428,101)			1,849,910
			(8,503,898)			(428,101)			1,849,910
Income tax provision		$	9,174,859		$	32,627,710		$	6,338,725

 

The components of deferred tax assets and deferred tax liability as of December 31, 2017, 2016 and 2015 consist of the following: 

 

		As of December 31,
		2017			2016			2015
Deferred tax assets:
Accrued interest		$	1,824,171		$	-		$	-
Inventory Valuation			4,545,708			-			-
Accrued expenses			330,663			-			-
Deferred financing costs on loans			741,008			-			-
Other temporary difference			56,062			721,570			-
Net operating losses from parent company			6,151,702			5,698,869			5,335,180
Valuation allowance			(6,151,702)			(5,698,869)			(5,335,180)
		$	7,497,612		$	721,570		$	-
Deferred financing costs on the loans			-			(1,971,192)			-
Deferred tax liability from capitalized interest			-			-			(1,774,993)
Unrealized gain due to change in fair value of investments in gold			(819,937)			-			-
Deferred tax assets (liability) - Net		$	6,677,675		$	(1,249,622)		$	(1,774,993)

 

The following table reconciles the U.S. statutory rates to the Company’s effective rate for the years ended December 31, 2017, 2016 and 2015: 

 

		For the years ended December 31,
		2017			2016			2015
US statutory rate			34	%		34	%		34	%
Foreign income and loss not recognized in U.S.A.			(34)	%		(34)	%		(34)	%
China income tax			25	%		25	%		25	%
Miscellanies and non-deductible expense			1	%		1	%		(2.3)	%
Effective tax rate			26	%		26	%		22.7	%