NOTE 6 - INCOME TAXES
Stemcell Holdings, Inc., the holding company registered in the state of Delaware, does not plan to engage in any business activities in the United States. For the years ended December 31, 2017 and 2016, Stemcell Holdings, Inc. was subject to U.S. federal income tax but had no corporate tax liabilities as it reported insignificant net and tax losses due to local and professional fees. Stemcell Holdings, Inc. is not expected to generate any future taxable income in the United States and does not recognize any tax benefit from federal net operating losses.
The Company conducts its businesses through its wholly owned subsidiary, Stemcell Co., Ltd. Stemcell Co., Ltd. is registered in Japan and is subject to national and local income taxes in Japan.
The provisions for income taxes for the years ended December 31, 2017 and 2016 relate to Japanese income taxes by Stemcell Co., Ltd. and are summarized as follows:
| For the Year Ended | For the Year Ended | ||||
| December 31, 2017 | December 31, 2016 | ||||
| Current | $ 1,250,838 | $ 1,275,998 | |||
| Deferred | (62,131) | (23,472) | |||
| Total | $ 1,188,707 | $ 1,252,526 |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The Company's deferred income taxes at December 31, 2017 and 2016 relate to Stemcell Co., Ltd. and are as follows:
| December 31, 2017 | December 31, 2016 | |||
| Deferred tax assets: | ||||
| Accrued vacation | $ | 10,025 | $ | - |
| Accrued bonus | 3,782 | - | ||
| Business taxes | 53,901 | - | ||
| Unpaid accrued expenses | - | 4,290 | ||
| Revenue | - | 17,558 | ||
| Deferred tax assets | 67,708 | 21,848 | ||
| Deferred tax liabilities: | ||||
| Fixed Assets | (5,866) | - | ||
| Deferred tax liabilities | (5,866) | - | ||
| Valuation allowance | ||||
| Net deferred tax assets | $ | 61,842 | $ | 21,848 |
The reconciliation of the Company's effective income tax rate to the U.S. federal statutory income tax rate for the years ended December 31, 2017 and 2016 is as follows:
| For the Year Ended | For the Year Ended | ||
| December 31, 2017 | December 31, 2016 | ||
| U.S. federal statutory rate | 34.00% | 34.00% | |
| Japanese tax rate differential | 4.01% | -10.10% | |
| Effect of expenses not deductible for tax purposes | -3.30% | 3.82% | |
| Return to provision and other true-ups | -2.76% | 0.00% | |
| Other, net | 0.04% | 0.00% | |
| Total | 31.99% | 27.72% |
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Tax Act reduces the corporate tax rate from a maximum of 35% to a flat 21% rate. The rate reduction is effective on January 1, 2018. There was no impact of the rate reduction on the Company's income tax provision as the Company had no federal deferred tax balances at December 31, 2017.
In conjunction with the Tax Act, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. 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 Tax Act. The Company has determined the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Act.
At December 31, 2017 and 2016, the Company had no unrecognized tax benefits, accrued interest or penalties. The Company does not expect any significant increases or decreases to the Company's unrecognized tax benefits within the next 12 months.
The Company is subject to examinations by US federal and Japanese taxing authorities for the tax year ended December 31, 2016. The Company is not current under any tax examinations.